Worth it to Refinance? Where are rates going?

Question

Hey guys do you know good calculators for figuring out breaking points for whether it's worth it to refinance loans?

I'm currently refinancing everything from personal home loan, our residential investment properties and our commercial loans.

Second question: Where do you think current rates are going? They've gone up so much in last few weeks. Do you think it's possible that they've raised them too much in a short period of time, so perhaps they will lower them a bit more?  Or are they just headed up at a fast pace?

Any advice or resources would be great thanks!

Chad Ballard · Answer

Will F., Your payments would be as if the loan was paid over 20 or 30 years.  When the balloon payment comes due in 5, 7 or 10 then rest of the loan comes due in a larger lump sum.

For example $100k loan amortized over 30 years with a balloon payment after 10 would leave you paying $477.42 per month and have a balloon payment of $79,2961.34 at the 10 year point ($36,073.76 in interest).

If you changed the balloon payment to 7 years then the balloon payment would be $86,536.88 ($26,162.35 in interest).  Your monthly payment would remain the same at $477.42 since it is amortized over a 30 year period.

A fixed rate loan of $100k at 4% would have a higher monthly payment but would be paid off at the end of the term no balloon payment.

Do a search for "Balloon Loan Payment Calculator with Amortization Schedule" and you should find what you are looking for as far as a calculator to help you out.

Will F. · Answer

Sorry I forgot to ad that they are amortized over 30 years. They balloon at 10 years and 7 years since they're commercial loans. OR did you account for this in your numbers?

I suppose that the benefit would be that the 10 year on is locked in longer and one could expect rates to be a lot higher in much less than 10 years

Is there a calculator where you can plug these in for commercial loans that have 5, 7, 10 year payoffs but are amortized for 20 or 30 years?

Arjun K. · Answer

I don't think we will see 3.75% ever again this cycle.  Fall 2012 not only saw tight treasuries but also the squeeze from the just announced Fed MBS purchases.  My guess is maybe you will see 4.5%, but I suspect its 50/50 probability.  I think we need another shoe to drop to go beyond 4.5% (china implosion, Greek II, etc.).

William Brace · Answer

I'm on the opposite side of the fence from most people. I think this quick jump in rates is temporary. I still don't feel the economy is very strong. They talk about how unemployment is down. I would agree that the number of new claims are down but what about all the test where that benefit had expired and they are still unemployed? I still think we will see a sort of tremor or aftershock of this whole mess and we will the market decline once again. Maybe not as severe as last time but still a decline. Just my $0.02 and none of can predict where the market will go.

With my next loan (waiting for a short sale to close) I will take a higher rate and get a credit to cover closing so I can refinance in the event the market dips again. My last investment property purchase in November 2012 was 3.75% with a credit large enough to cover all of closing and all 3rd party fees.

Dawn Anastasi · Answer

If you borrowed $100,000 for 7 years at 4% you'd pay $1,366.88 per month for a total paid of $114,817.92 and interest of $14,817.92.

If you borrowed $100,000 for 10 years at 5%, you'd pay $1,060.66 per month for a total paid of $127,279.20 and interest of $27,279.20.

So as you can see, the total amount of interest you'd pay is about double in the second scenario than in the first.

Will F. · Answer

Also for comparing rates. How do you compare 7 year at 4% vs 10 year at 5%?

Is there a number that I could request from the different banks so it makes it simpler to compare? Do you usually just look at the total monthly payment or APR and compare them to each other?  In other words do you make apples to apples comparisons for different loan types for figuring out which is the best option?

Will F. · Answer

Chad B.
Thanks everyone for replies. I think you're all right. We should all lock in low rates NOW before they go up (as they are as we speak LOL!)

My question then is more if it's worth it to refinance our commercial loans.

We have several SBA Real Estate and Commercial real estate loans. What confuses me is that some of the loans are amortized over 30 years, but due in lets say 10 or 20 years.

For instance one loan we owe $450K, we pay 6.89% and started 7/2002 it's due 6/2017 so it's a 15 year loan but amortized over 30 years .  The prepayment penalty is really confusing to compute because it factors in current rates vs past and at the moment is $72k for a prepayment so that seems really high. 
So would It not make sense to lock this into a 10 year fixed rate of 5%?

Is there an online calculator that takes into account loans with shorter due dates but longer amortization rates?

Any general advice for when it is worth it to refinance or not would be great too. Thanks so much

Dawn Anastasi · Answer

The 2 rates I got in 2011 I don't think I can beat ... 3.5% on a single-family and 3.625% on a duplex.

I have another single-family from 2005 where the rate is 5.125% which is high compared to today's rates, but the balance is only $35,000 so I doubt I could refinance without it costing too much.

Arjun K. · Answer

"As far as my second question, yeah the rates are definitely going up in the long term, but I was wondering specifically a discussion on what you think they will be in 1 month, 3 months, 6 months, a year, possibly 3-5 year scenarios?"

No one knows the answer.  Just in last month rates gapped up.. by definition that meant 1 month ago the market didn't see the gap coming.   I actually was locking in a rate on a Friday, but felt rates moved so much that i would give the weekend.. and then rates sold off just as hard Monday and Tuesday... it cost me probably $1,250 on my closing costs.

My personal view is rates will be higher 3-5 years from now.  I expect them to be slightly higher in a year, although I cannot predict the path to get there (1 month, 3 month, 6, month etc.).  I was taken aback at the speed of rise thus far...  they jumped up with treasury yields and I thought Fed would do more to surpress mortgage rates at record lows.

David Krulac · Answer

Will F.

Nobody knows where rates are going.

But I say these rates are the lowest since they have been tracking in 1960, that's 53 years ago!  Load up on these rates eventually they will be higher.  I borrowed a 30 yr mortgage at 15% fixed, so I know from first hand experience.

Borrow as much as you can for as long as you can, within the parameters of your ability to repay.

Worth it to Refinance? Where are rates going?

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