Hello luke!
Let me cover a quick few points before we go into the meat of your
question.
1) I strongly believe that your equity line of credit is an
adjustable-rate loan. It would be unheard-of to get a 4.75% rate for a
15-year fixed loan. What is more likely is that you are making
payments to pay it off in 15 years, but that the rate is not
guaranteed throughout. If interest rates go up, then you will find
that the rate you are paying will also increase. Depending upon your
circumstances, you might feel more comfortable folding that loan into
a fixed-rate refinance.
2) Since you are likely leaving the home within 7 years, you might
want to consider exploring a 5/1 or 7/1 ARM loan for the entire
refinance. These loans have fixed rates for the first 5 or 7 years,
and then convert into an annually-adjustable loan after that. A 7/1
will run about 0.25% lower than a 30-year fixed, and a 5/1 will be
about another 0.25% lower than the 7/1.
3) If at all possible, you will want to keep the total loan amount
under 80% of your home's current value. This way, you avoid paying
PMI, which is a very good idea. Prepaid Mortgage Insurance is just a
black hole you pour money into if you can't get down to 80%. It's a
necessary evil for those who can't avoid it.
OK, now to your question. The calculation for whether it is worth it
to re-fi is quite complicated, because it should take a number of
factors into consideration. Fortunately, there are online tools to
help us out. One that I've found to be thorough and reliable is the
Mortgage Professor's Calculator:
http://www.decisionaide.com/mpcalculators/RefinancingOneMortgage/RefiICalc.asp
Considering only your $141,000 mortgage at 7.125%, I compared it to a
6.75% loan with $1500 in closing costs. The answer is that this re-fi
deal would pay off in 59 months, meaning you should refinance if you
are going to have the home for 5 years or more. You can put different
combinations into the calculator depending upon what financing deals
you find. Overall, it seems favorable to refinance now if you can get
a good deal.
Depending upon how you feel about the uncertain nature of the Line of
Credit, you might want to consider folding that into the re-fi as
well. The monthly payment on a $168,000 loan at 6.75% would be $1090,
which compares favorably to what you are currently paying between your
two loans. Plus, you remove the uncertainty of the adjustable rate on
the Line of Credit.
If you are willing to go with a 5/1 or 7/1 ARM, then it should be very
easy to find a loan that makes refinancing a great deal for you. If
you are sticking to 30-year fixed for more long-term certainty, then
your main advantage will come from getting rid of that adjustable-rate
Line of Credit.
If you have ANY other questions about your decision, please ask for
clarifications.
Cheers,
nauster-ga
-USEFUL LINKS-
Mortgage FAQ, What is a Home Equity Line of Credit?:
http://4loans.financialcircuit.com/faqloan.htm#whatisheloc
Mortgage Professor:
http://www.mtgprofessor.com
ARM Section:
http://www.mtgprofessor.com/adjustable_rate_mortgages.htm
PMI Section:
http://www.mtgprofessor.com/mortgage_insurance.htm |
