patrick.net

I usually just look at it as a ROI problem. If I read it correctly, you are paying $6K in fees to save 1 pt on your interest rate?

Your monthly payments don't seem right for either case. A 1% change in rate won't decrease your payment that much.

Why can you only get 5.125% for a 30 year mortgage? The closing costs/fees also seem higher than they should be. Keep shopping. If you need to change something in FICO or debt load to get a better deal, do that first.
Also, you are adding 7 years to your loan. Mortgage interest is front loaded and you're starting back at the beginning. Can't you at least refi to 25 years? Or maybe 20 years? I'm assuming you goal is to eventually own the home mortgage free.

There are several things to consider:

1) a) What was your original principal amount? When I plug in 6.125%, 30 year fixed, and $857/month, I get $141,000. At the end of year 7, I'd get $126,671. Have you paid an extra $7-8K in principal thus far?
b) Otherwise, if you've never made an extra principal payment, and after 7 years, you have the standard amortization to get to $119K, then I'd get the original loan at $132,461, and the monthly payment should only be $804.85 ($222,139 over 23 years). Does that $857 include a holdback for property tax/insurance?

2) For $125K at 5.125% 30 year fixed, I get $680.61/mo ($245,020 total). How'd you get $606? You are paying $6K in fees to pay $8.5K more by your calculation (and $23K more by my calculation).

3) For comparison, a $125K loan at 4.125% 15 year fixed would be $932.46/mo. That's about $75 more than you pay now, but paid off much quicker. If you're concerned about total payment, that's $167,843.

4) What if, hypothetically, you could get a 23-year loan so you can pay this off on schedule and still get a lower interest rate than 30-year, but higher than 15-year? Would you take it? Is there a benefit to extending to 30 years again? Hypothetically, a 23-year loan at 4.625% would be $736.50/mo ($203,274 total).

5) Are your fees $6K? Can you front the fees and lower your payment amount? In paying $6K, you are extending the whole rest of your loan by 7 years and also borrowing that $6K for 30 years. If you paid up front, you'd get $647.94/mo instead ($233,258 total).

tatupu70 says

I usually just look at it as a ROI problem. If I read it correctly, you are paying $6K in fees to save 1 pt on your interest rate?
Your monthly payments don’t seem right for either case. A 1% change in rate won’t decrease your payment that much.

You're right. My mortgage broker gave me incorrect numbers on the refi. The new payment for PI would be 680. Making the final payment over 30 years 245k. If I continued the same payment I'm making right now, I'd pay off the property in under 20 years as opposed to 23 years.

Why in a world are you considering rental house re- finance with 30 years FIX?
Go ARM to maximize your ROI, unless you have a rock solid house in superior location and want to pass it for generation to come. Renal houses holding period is about 10 years.
After 5 to 10 years you will have options:
1. if interest rate will go down, so will your interest rate.
2. If interest rate will go up, so most likely rent will do.
3. If interest rate will go too high (you will have a cup) you can sell property and look for another better deal.
4. If you prefer to pay off house sooner you can always add some principal to your payments while your low low interest rate stay intact.
Win-win-win.

REpro says

1. if interest rate will go down, so will your interest rate.
2. If interest rate will go up, so most likely rent will do.
3. If interest rate will go too high (you will have a cup) you can sell property and look for another better deal.
4. If you prefer to pay off house sooner you can always add some principal to your payments while your low low interest rate stay intact.
Win-win-win.

Can't I do this with a record low interest rate as a baseline. I can always pay more to speed up.

My goal is to have cash flow instruments when I retire.

Payoff2011 says

Why can you only get 5.125% for a 30 year mortgage?

Is it because it's non-owner-occupied? Usually the rate on non-owner-occupied is higher.

Does PenFed's 5/5 ARM require it to be owner-occupied? It doesn't say, does it? Maybe they can quote a different rate for that -- might be better than a 5/1.

https://www.penfed.org/productsAndRates/mortgages/mortgageCenter.asp

REPro is right that you need to consider the return on any rental property. Does your property cashflow now, burritos?

O.K. you want to retire with income producing, mortgage fee house.
You have to remember, that after 15 years your house and you will be different.
After every 15 years house needs to be updated, some things need to be replaced or may become functionally obsolete; to get similar rent you are receiving now. Enjoy cash flow when you can.
How big will be a difference for you when you retire: Have a house paid-off (with troubles) and receive $1000/mo. Or have a newer house (trouble free) with a mortgage of $1000/mo. but receiving rent of $2000/mo.??

interest rates are much lower, you should be able to get a lower rate, and try for 15. 30 years is awfully long.

REpro says

O.K. you want to retire with income producing, mortgage fee house.

You have to remember, that after 15 years your house and you will be different.

After every 15 years house needs to be updated, some things need to be replaced or may become functionally obsolete; to get similar rent you are receiving now. Enjoy cash flow when you can.

How big will be a difference for you when you retire: Have a house paid-off (with troubles) and receive $1000/mo. Or have a newer house (trouble free) with a mortgage of $1000/mo. but receiving rent of $2000/mo.??

I'm not projecting to be an active REvestor by then. I just want to sit on my laurels and collect my income and at the same time afford myself some protection from inflation.

My godmother was a passive investor. She would by a primary residence, move and upgrade every 8-10 years and keep the primary and rent it out. Her greatest cashflower would always be the older property in the crappier area.

Needless to say, I got word from my mortgage broker that I don't have enough equity to refi, so the point is moot.