Refinancing during pre payment period

[ballofwisdom]

Hi all,

I'm a newbie to real estate in general, let alone real estate investing. I have a couple questions that will probably lead to many answers.

Can you refinance during a pre-payment period?
What is the penalty and how should I determine that the cost of the penalty is worth the lower mortgage?
Would it be a fair prediction to say that interest rates will be just as low or lower by April 2007?
Anyone have general sound refinancing tips/suggestions?

Details:
I have a 6mo. pre payment penalty on a home that has only been registered in my name since September. This was a pre-construction deal. Home is located in California (Riverside County).

I plan on renting this property for 5-12 years.

Thanks for your time and help!!

[Rude Awakening]

Yes you can refinance your mortgage during the prepayment penalty period of your loan.
I believe in California, the penalty is 6 months of interest payments. Out here in Minnesota it's 2 months of interest or 2% of the loan, which ever is less.

Here's a simple way to calculate if the refinance will benefit you:

Add up the prepayment penalty fees with estimated closing costs for getting a new loan. (If you don't know what the closing costs will be, use about 3.5% if you are escrowing your taxes and insurance). Take the sum of the two, and divide it by the amount you will be saving each month on your payments. Then divide that number by twelve. That's how many years you will have to keep the home to see a benefit.

For example, if the prepay fees are $6,000 and the closing costs are another $6,500, the sum is $12,500. And if by doing this refinance you were to save $300 a month, you would divide the 12,500 by the 300 and come up with the number 41 months. Divide that by twelve and you get about 3.5

Interest rates have always been wacky. As long as there isn't a big shake in the economy (which is unpredictable), the increase or decrease in rates will be minimal and possibly show more margin over longer periods of time. Depending on the size of your loan, the difference between a 6% and 6.25% mortgage payment might be as little as several dollars a month.

Good Luck.

[Jnazareno]

if you refi with the same bank or lender, usually they will waive the penalty..
I read somewhere that rates might drop next year or stay the same..

[ballofwisdom]

Thank you to Rude Awakening and Jnazareno! It's not surprising to me that a response has come from someone named 'Rude Awakening'! That is not a shot at you Mr. Rude; that's just been a consistent theme with my first home purchase, real estate investment, ect! Yes, the two are linked. My first home purchase was actually not for me to live in but rather a investment. Some my think that is crazy, and for the most part it is crazy. However, I am not shaken and still have a drive for learning the art of real estate investing! I have learned leaps and bounds, just by getting into the game. Thanks again for the insight.

To everyone else who just got whim of this thread. Please feel free to leave more comments, strategies and solutions for the novice, unaware and forgetful!

[Jnazareno]

I am not shaken and still have a drive for learning the art of real estate investing! I have learned leaps and bounds, just by getting into the game. Thanks again for the insight.

forgetful!

To learn the art of investing is an art the takes a lifetime, learning and applying what you've learn is the key to a succeesfull life investing in any market or condition.

I congratulate you .. now matter how old or young you are, it's never to late to invest.

1 advice I like to give to you is, when investing always do your research, never assume its good, or go with someone else advice unless you've done your research

[ballofwisdom]

Absolutely, due diligence is vital! What I'm having problems uncovering is true and usable data. What are the steps to finding a solid cash flow deal? I have heard all about "sticking to one strategy", "exit plans" and "master mind groups". I believe in all of these topics but none of them teach me how to systematically discover real cash flow opportunities! Most people say that you have to mess up to learn; true, but that's gonna happen with time. I wanna learn from experienced pro's who do this for a living! I want to be the sponge to their knowledge and then APPLY IT!!!

Thanks again!