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<br>The [mortgage rates](https://www.ageon.ph) dropped once again. I'm refinancing my home mortgage again. It's incredible it hasn't been even a year considering that I did it last time.<br> |
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<br>The rates were low last year due to the fact that of the anticipation for QE2. Once QE2 began, rates went up. Now rates are low again. Why? I do not understand. Maybe the market is expecting a QE3.<br> |
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<br>This time, rather of following my typical Stepping Down the Ladder script, I'm refinancing my home mortgage to an ARM with a squander. Before you call me crazy for selecting an ARM when rates are lower than ever, bear with me and check out to the end.<br> |
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<br>Stepping Down the Ladder<br> |
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<br>Stepping Down the Ladder indicates re-financing to a set rate slightly above the market rate, with enough credit from the loan provider to cover the closing expense. Rinse and duplicate every time the rates go lower once again.<br> |
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<br>It's a no-lose proposition. You start benefiting from the lower rate on day one. As the rates go lower, you keep locking in to a lower rate, and never ever pay any closing costs. Repeat this process till the rates reach the bottom. Because the rate is repaired, your rate will remain at the bottom.<br> |
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<br>10-Year and 15-Year Fixed Rate Mortgages<br> |
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<br>When I took a look at refinancing this time, I began with the exact same approach. Because I have a 15-year set rate home mortgage now, I looked at 15-year fixed and 10-year set options.<br> |
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<br>If I go with another 15-year repaired, the finest rate I can get is 3.625% with no [closing](https://ykrealyussuf.com) cost. It's barely beneficial due to the fact that my present rate is 3.75%. If I choose a 10-year repaired, I can get 3.25% with no closing cost.<br> |
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<br>Between these two options, I would select the 10-year fixed. I have actually had a 15-year set home for a couple of years now. I want to pay it off in ten years.<br> |
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<br>5-Year Adjustable Rate Mortgage (ARM)<br> |
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<br>I normally do not look at ARMs at all, due to the fact that the whole idea of Stepping Down the Ladder has to do with locking in the most affordable rate for the life of the loan. But considering that I was considering a 10-year fixed, I likewise looked at ARMs.<br> |
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<br>A 5/1 ARM has a set rate for the very first 5 years. The rate starts changing every year after 5 years. If I'm going to pay off in ten years, by the sixth year the staying balance will be small enough that I can settle if I wish to. If I don't like the rate at that time, I will simply pay it off. Meanwhile I will have saved quite a bit of interest in the first 5 years.<br> |
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<br>If I go with a 5/1 ARM, I can get 2.75% without any closing expense.<br> |
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<br>Squander Refi<br> |
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<br>A cash-out refi suggests obtaining more than the existing loan balance. Usually you will pay a greater rate and/or greater fees if you re-finance with a cash-out. However, if your loan-to-value ratio (LTV) is low enough, there is a ceiling you can go to without sustaining a [penalty](https://everhonorslimited.info) for cash-out.<br> |
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<br>Why take money out? Because the lender credit is connected to the loan quantity. Within particular limits, the higher the loan quantity, the higher the [loan provider](https://tylercarty.codeyourbusiness.online) credit. When the [loan provider](http://www.clicksproperty.com) credit is high enough, it will be able to bump the rate down a notch and still make it a no closing expense loan.<br> |
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<br>For instance, suppose the loan provider credit for a $100k loan is $1,000 at 2.625% and the total closing expense is $2,000. It implies the net closing cost is $1,000 for the 2.625% rate. To make it no charge you will have to go to 2.75%. However, if you increase the loan total up to $200k, the [lender credit](https://gbslandpoint.com) will be $2,000, enough to cover the closing expense. Then the $200k loan will be no cost at 2.625%.<br> |
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<br>If I increase the loan total up to the maximum permitted, I can get a 5/1 ARM at 2.625% with a net $900 paid to me at closing in addition to the cash-out. I grabbed this offer.<br> |
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<br>I'm utilizing the very same lending institution I utilized last time: First Internet Bank of [Indiana](https://www.iminproperties.co.uk) ("FirstIB"). For the loan I want, FirstIB uses the best deal among a list of lenders I looked at: PenFed, National Mortgage Alliance, and AmeriSave.<br> |
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<br>Won't borrowing more increase the overall interest paid? Yes, if you just pay the minimum. Because the loan has no prepayment charge, you can pay the cash-out right back in the very first month. The only effect of a greater loan quantity will be a greater needed month-to-month payment quantity. Since I'm going to follow a 10-year reward schedule and the 5/1 ARM uses 30-year amortization, the higher required monthly payment is still lower than what I'm going to pay anyway.<br> |
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<br>For instance, to pay off $100k in ten years at 3.25%, I will have to pay $977 per month. The required monthly payment on a $200k 5/1 ARM at 2.625% with a 30[-year amortization](https://floridalongtermrentals.com) is $803. If I obtain $200k, pay back $100k immediately and keep paying $977 a month, the [staying](https://glorycambodia.com) $100k will still be paid off in 10 years.<br> |
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<br>Borrow More to Invest?<br> |
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<br>I believed about [keeping](https://www.iloiloprimeproperties.com) the cash-out and investing it. After all, it's difficult to see how I can't make more than 2.625% a year from my investments. A five-year CD from Melrose Credit Union pays 2.90% a year. If I only pay the needed minimum month-to-month payment and put the cash-out and the additional primary payments in a CD, as long as the CD rate is greater, I will come out ahead. The tax on the CD interest and the tax deduction on the mortgage interest will be a wash.<br> |
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<br>If I put the money in a worldwide diversified portfolio of stocks and bonds, the return has to be higher - if I don't think that I should simply liquidate everything, pay off my home loan, and put the rest all in CDs. Everybody who is carrying a home loan and investing at the same time is betting the [investments](https://elegantcyprusproperties.com) will make more, or else they would not invest before the loan is settled.<br> |
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<br>But anticipated returns are just that - expected. You can bet and expect all you want. The actual returns might come greater or lower than your expectation.<br> |
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<br>Although the thought of making money with other individuals's cash is appealing, I'm not yet that comfy with it. I might still do the CD however that has to do with it. I do not desire to take more danger with this cash.<br> |
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<br>Rates Have Nowhere to Go But Up?<br> |
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<br>You might believe rates have nowhere to go however up and that it's shortsighted to get an ARM now when rates are the most [affordable](https://nyumbanirealtygroup.com). You might believe five years from now rates of interest will be much higher.<br> |
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<br>I believed the same every time I refinanced in the last 10 years however rates keep coming down, reaching one historic low after another. I truthfully thought it was the last chance to refinance in March 2010. That was two refinances back.<br> |
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<br>The marketplace has defied all predictions of higher rates. I will stop saying this will be my last refinance. It will not shock me if rates go in either case: significantly higher or significantly lower. If rates go down once again, I will refinance once again with an ARM and extend my 5-year set rate period.<br> |
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<br>When you are within ten years to paying off your mortgage, re-financing to an ARM can conserve you money compared to a 10-year fixed rate home mortgage. The rate is lower. So are the closing costs (for example PenFed charges a 1% origination fee on all fixed rate home loans, however not on ARMs).<br> |
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<br>Taking a cash out and paying it right back will reduce the closing costs. You might even get paid for doing the refinance. If you are going to settle in ten years anyhow, it's free cash.<br> |
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<br>Say No To Management Fees<br> |
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<br>If you are paying a consultant a portion of your properties, you are paying 5-10x excessive. Learn how to discover an independent advisor, spend for advice, and just the suggestions.<br> |
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<br>Find Advice-Only<br> |
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<br>Reader Interactions<br> |
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<br>Comments<br> |
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<br>1. Money Beagle says<br> |
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<br>June 13, 2011 at 5:50 am<br> |
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<br>I would re-finance in a heartbeat if it were possible, but the equity in our home is well listed below what the banks would consider in giving us a PMI-free loan w/o escrow (which is what we have today due to the truth that we put 20% down at the time). If I were able to re-finance I would absolutely consider an ARM. Even if rates were greater a couple of years down the roadway, the quantity of principle I 'd be able to pay down in the mean time would probably well offset any possible uptick down the roadway.<br> |
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<br><br> 2. David says<br> |
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<br>June 13, 2011 at 7:39 am<br> |
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<br>Very intriguing analysis. Did you consider the PenFed 5/5 ARM? If so I'm curious about your thoughts on that. I've taken a look at that over the last couple of years whenever there was a dip in rates however I always wound up choosing the "much safer" fixed rate loan.<br> |
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<br><br> 3. Harry Sit says<br> |
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<br>June 13, 2011 at 9:27 am<br> |
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<br>@David - Yes I considered PenFed's 5/5 ARM. It's currently 3.25% for the first five years, versus 2.625% on the 5/1 ARM from FirstIB. If I'm going to pay 3.25%, I may too get the 10-year repaired at 3.25% from FirstIB without any closing expense. For my loan, the PenFed 5/5 ARM isn't as great as the offers from FirstIB.<br> |
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<br><br> 4. Mike says<br> |
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<br>June 13, 2011 at 10:46 am<br> |
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<br>Interesting technique. What is the max. LTV ratio you can squander without being penalized?<br> |
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<br><br> 5. Harry Sit states<br> |
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<br>June 13, 2011 at 10:47 am<br> |
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<br>@Mike - 60%.<br> |
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<br><br> 6. TJ states<br> |
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<br>June 13, 2011 at 6:00 pm<br> |
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<br>Has teh no closing cost expired? I don't appear to see that option ...<br> |
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<br><br> 7. Harry Sit states<br> |
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<br>June 13, 2011 at 8:30 pm<br> |
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<br>@TJ - FirstIB just lists rates with closing expense. The next higher rate will have no closing cost. For instance if the highest rate (lowest costs) noted is 3.5%, 3.625% will have no closing expense.<br> |
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<br><br> 8. enonymous states<br> |
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<br>June 14, 2011 at 11:08 am<br> |
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<br>good analysis<br> |
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<br>of course 60% LTV, and little adequate balance to be able to benefit the loan with a balloon payment at the end of the 5 years is the essential<br> |
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<br>the Penfed 5/5 is a significant deal at 3.25% (if that is stll there) particularly for those with jumbo home mortgages. however it is not a terrific offer for those in TFBs precise circumstance ...<br> |
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<br>I'm in a 15 year fixed, doing the refi thing yet once again (constantly no closing costs), and the 5/5 or 5/1 or perhaps 7/1 ARMs didn't make sense to me, largely because I hesitate to to make the large balloon payment required to be safe with a 5/1 or 7/1, and due to the fact that the 3.25 5/5 ARM isn't low enough to entice me from my 3.75% 15 yr fixed ...<br> |
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<br><br> 9. ChrisCD says<br> |
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<br>June 17, 2011 at 7:59 am<br> |
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<br>Forgive me, however I am uncertain how the no-closing costs deal works. Whenever I have looked they have wanted to wrap the costs into the loan which isn't what I am seeking to do.<br> |
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<br>In addition, our home worth has dropped low enough to make it the option seem out of reach.<br> |
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<br>cd:O)<br> |
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<br><br> 10. Heidi says<br> |
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<br>June 18, 2011 at 4:54 pm<br> |
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<br>Money Beagle - I was in a similar scenario. After calling numerous banks (since their site calculators regularly concluded that I would not receive their mortgage due to my LTV), I found Connexus Credit Union. They let me do an 80/20 to prevent PMI just last December and I saved over a $1,000 a month on my super jumbo mortgage. I have considering that paid off the HELOC and am settling the 25 year 3/3 ARM over a ten years amortization. You may desire to attempt providing a call.<br> |
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<br><br> 11. Madison says<br> |
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<br>June 22, 2011 at 6:38 am<br> |
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<br>I keep decreasing our 5/5 ARM at penfed with a plan to pay off in 5-10 years. And similar to you, I believed every time it could not go lower. We're at 3.375% on our 5/5, and now obviously, I see rates are even lower once again!<br> |
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<br>I'll have to inspect out FirstIB, I hadn't checked out their ARMs recently.<br> |
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<br><br> 12. TJ states<br> |
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<br>June 23, 2011 at 9:26 pm<br> |
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<br>@TFB - I see an alternative without any points, but this choice still has $2k in costs (origination charge, appraisal, credit report, flood cert, title insurance coverage, federal government recording charges)<br> |
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<br><br> 13. Harry Sit states<br> |
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<br>June 23, 2011 at 10:59 pm<br> |
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<br>@TJ - If you want the no expense choice, include 0.125% to the greatest rate noted. You need to call them.<br> |
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<br><br> 14. TJ says<br> |
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<br>August 7, 2011 at 4:08 pm<br> |
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<br>@TFB do you have any experience with boxhomeloans. com?<br> |
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<br>I improved rates for a 30 year than any other websites. I locked it but because it was "after hours" (the weekend), they can't verify until Monday, if it is lower than what i locked, mine will be the lower rate, if rates go on monday, they will neglect my demand and I have to resubmit a lock demand.<br> |
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<br><br> 15. Harry Sit states<br> |
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<br>August 7, 2011 at 6:16 pm<br> |
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<br>@TJ - Sorry, I don't have any experience with Box Home Loans. Maybe check the FatWallet thread?<br> |
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<br><br> 16. extremely expense says<br> |
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<br>February 19, 2012 at 7:27 pm<br> |
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<br>First IB looks appealing for a 5/1 ARM. However, I live in Maryland and it seems that they do not lend here. Do you understand if this is true and if so, could you advise other institutions? I am seriously considering the PenFed 5/5 at 3.125% with no closing ... Thanks for an excellent website.<br> |
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<br><br> 17. Harry Sit states<br> |
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<br>February 19, 2012 at 8:12 pm<br> |
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<br>@super bill - Several other readers likewise reported the same thing. You can constantly call their 800 number to validate if it's still the case. If so, go with PenFed then. Maryland has a transfer tax. It'll be extremely challenging to beat the PenFed rate when you consist of the transfer tax, which PenFed says it covers.<br> |
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<br>"5/5 Adjustable Rate Mortgage (ARM) Promotion: We will pay closing expenses as much as $10,000 per loan, to include: Appraisal cost, Tax Service Fee, CLO Access Fee, Title Fees, Transfer Tax Fees, Credit Report Fee, Flood Cert Fee, Recording Fee, Survey if required and Work Verification Fee."<br> |
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<br><br> 18. super costs states<br> |
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<br>March 12, 2012 at 10:55 am<br> |
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<br>TFB - just desired to follow up on my [posting](https://ccom.vn). I appled for the PenFed 5/5, which seemed great, but their appraisal was available in method low - about 120k under what our last appraisal was one year earlier. Therefore, our loan quantity exceeds their limit offered the valuation. I am attempting to appeal but in the meantime, wanted to see if you or others had other tips for a 5/1ARM or interest just item with no closing costs? (BTW, I consulted FirstIB, and they do not lend to MD) Thanks once again.<br> |
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<br><br> 19. Harry Sit says<br> |
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<br>March 12, 2012 at 12:55 pm<br> |
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<br>@super costs - Too bad the PenFed appraisal can be found in low. I hope you will have the ability to effectively appeal it. Maybe they can request another one? The other two [loan providers](https://factrealestate.com) on my list to examine are NMA (nmaloans.com) and AmeriSave (amerisave.com). Also check the [long] FatWallet thread.<br> |
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<br>Reply<br> |
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<br><br> 20. Jc says<br>[zillow.com](https://www.zillow.com/) |
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<br>July 6, 2012 at 8:52 am<br> |
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<br>If my lyv is 50% and I refi from a 30 to a 15yr fix, and money out 50,000 and then repay the 50,000 towards the principal, it appears i will be saving a big quantity of interest each month. Is there a draw back to this besides a greater monthly payment?<br> |
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