I want to give less money to my mortgage lenders

Peter Principle

I've got a mortgage, been paying on it for three years, never missed a payment. I understand that one way someone can reduce their monthly payments is refinancing. Would anyone like to tell me a bit more about this or provide a link to a helpful summary of the procedure and what might be involved?

Are there other ways to reduce a mortgage payment?

Six

A refinancing at its core is "redoing" your current loan at an updated rate. This can save you money if current rates are lower than the rate you're currently paying, but it will cost you in fees, and depending on your state and the value of your home, that can be expensive. You're basically closing again. Whther it's worth it depends on how much you're willing to lay out up front for monthly savings, and those depend on what your current rate is and what your new rate will be. Since a refinance is a new loan, you could also change the type of loan to something with lower payments - you're basically ending your first loan and beginning a new loan on the principle remaining. You could conceivably refinance to an interest-only loan to save yourself some money on payments. Closing costs would be folded into the new loan.

Depending on your loan type and lender, you may have other options, such as a readjustment. This is what I did recently, but my main goal was resetting the time table on a balloon payment. Saving a quarter of a point in interest was nice, but the fee ($1350) meant that I was paying enough up front that any monthly savings would take more than a year to make a difference. Talk to your lender and find out what options you might have.

MichaelLC

You can refinance, but it costs $, usually on the order of a few thousand dollars. Really depends on what your current rate is, what market you're in - are there a lot of foreclosures around you, etc., and the bank or broker you're currently with.

From what research I've done for myself, 3 years is probably not enough. But really the only way to know is to call your broker; with a little research they should be able to give you some odds on the chance and a possible percentage.

Other method is to stop paying PMI (if you are) once you reach 20% equity on the current price of your home.

Liquid Hellz

Look up a local mortgage broker in your area and speak with them they can help you tremendously. Typically it is not a smart move to refinance your mortgage unless you are certain you will be staying in that same home for a number of years. This is because it will cost you a few thousand dollars to refinance. This usually takes a few years of $100 - $200 less mortgage payments to make up.

Peter Principle

I believe the rate I'm paying is 6.5%, fixed rate. My loan is a VA loan through Wells Fargo.

The Crowing One

You can refi down to maybe a 5-5.5%, perhaps better if you go through VA once again. 4.5% is still common for FHA in some states.

Little known fact: VA Loans are actually, 100% foreclosure-proof as the VA is committed to keeping vets in their homes and not putting them on the street.

t_catt11

Should you refinance? Here you go, clipped from a column:


Q: With mortgage rates dropping so much, I'm debating whether it would be worth refinancing my loan. My current rate is 6.25 percent. I always heard you should reduce your rate by at least 1 point to make it worthwhile. P.W., Solon

A: There's no hard-and-fast rule about the spread that makes refinancing worth it. It depends also on your balance. A 2-point drop on a $50,000 balance wouldn't be as good as a half-point drop on $500,000.
What you really need to look at is how long it will take you to recoup your refinancing costs. These costs vary by lender and by the amount of your loan, but we can use $2,500 as a good ballpark figure. (Your title insurance would be the big variable. It's based directly on your loan amount and whether you get a discount because it's a refinance rather than a new policy.)

Let's say you got a $157,000 loan three years ago at 6.25 percent for 30 years. Your payment would be $967, and you'd have a balance of about $150,000.

If you refinanced that at 5 percent, your new payment would be $805. That would be a savings of $162 a month. If your closing costs were $2,500, it would take you 15 months to recover your costs. Assuming you planned to be in the house for at least a little more than a year, the refinancing would be worth it.
If, three years ago, you'd financed $360,000 at 6.25 percent, your payment would be $2,217. If you refinanced your $350,000 balance at 5 percent, your payment would drop to $1,879 a month, for a savings of $338 a month.

That means you'd recoup your costs in seven months.

Peter Principle

Would I be paying PMI on a VA mortgage?

If I'm paying PMI, that should be listed separately on the monthly statement I get from Wells Fargo, correct?

The Crowing One

You shouldn't be paying PMI for a VA loan.

Unless VA is offering a better rate, I'd stick with the loan you have. I know many, many people who would kill to have a VA loan for the reasons I described earlier.