When to Refinance Mortgage?

[gattaca]

I am currently in a 30-yr fixed rate mortgage at 4.5%. I have 29yrs left to go. I was recently offered a rate of 4.1% for a new 30-yr fixed rate. I would have to pay around $3k for closing costs. I would save about $100/mo.

Should I refinance? Or at what rate would you refinance?

[emanon1501]

General rule is when the % drops 1 percent. However, will the interest rate ever go below 4.1%?

[Petunia 100]

Originally Posted by gattaca

I am currently in a 30-yr fixed rate mortgage at 4.5%. I have 29yrs left to go. I was recently offered a rate of 4.1% for a new 30-yr fixed rate. I would have to pay around $3k for closing costs. I would save about $100/mo.

Should I refinance? Or at what rate would you refinance?

The more you owe, the more important the interest rate.

How much of that $100 per month savings is from the lower rate and how much is from extending the term out an additional year?

[kork13]

One of the biggest questions is how long you plan to stay in that house. If you plan to keep it for a long time (10+ years), it could absolutely be worthwhile. But if the timeframe is short, probably not.

Keep in mind your break even point.... (Refi costs) / (monthly savings) = (break even point, in months). So for you, if you were to do this refinance, your break-even point would be in about 30 months ($3000 closing cost/$100 monthly savings = 30 months). If you sell the house before then, you lose money. If you sell shortly after that point, you're only barely benefiting yourself. If you keep the house for a long time, that's when you'll see the greatest benefit.

[bjl584]

Originally Posted by gattaca

I am currently in a 30-yr fixed rate mortgage at 4.5%. I have 29yrs left to go. I was recently offered a rate of 4.1% for a new 30-yr fixed rate. I would have to pay around $3k for closing costs. I would save about $100/mo.

Should I refinance? Or at what rate would you refinance?

It depends how long you plan to stay in the home. If you are planning to stay longterm it could benefit you.

You are in Canada, so you can't write off interest on your mortgage correct? So, that will not be a consideration in your calculations.

I'd be hesitant to restart the clock on a 30 year note, even if you have only paid one year of it so far. It may be more beneficial to wait another year or two (interest rates aren't going anywhere for at least that I long I would think), try to pay down as much principal as you can, then refinance. Maybe to a 25 or 20 year note.

After one year in your home and you looking at a possible refinance the save $100 a month, I have to ask? Did you buy too much house for your income? Would it be a better idea to make cuts in other areas of your budget to come up with an additional $100 a month. That would be a better idea than paying $3000 to save $100 a month.

[GREENBACK]

As I recall, someone just recently stated that these types of loans weren't available in Canada. Apparently that is incorrect? O.P., half a point isn't much. If you plan to stay there for 29 more years it will pay for itself but make sure you're ok with parting with 3k today. 4.5% is an incredible rate and we'll likely never see anything like this again. I wouldn't refi for the amount you describe but it might be worth it.

[jpg7n16]

Originally Posted by gattaca

I am currently in a 30-yr fixed rate mortgage at 4.5%. I have 29yrs left to go. I was recently offered a rate of 4.1% for a new 30-yr fixed rate. I would have to pay around $3k for closing costs. I would save about $100/mo.

Should I refinance? Or at what rate would you refinance?

I personally like to have all the numbers in front of me when making decisions. Here's what I was able to come up with.

Given this info, if paying the closing costs out of pocket, your mortgage is somewhere around $314k. Correct? (If rolling the $3k into the mortgage, you're around $360k)

If so:
The refi would save about $16k over the full life of the loan. But cost $3k, so savings of $13k.
If you invested the $3k and earned 5% after tax, you would have $13k.
Paying down your current mortgage by $3k would save about $8k over the life of the current loan.

The main things to consider are:
1) How long will you be in the home?
2) Do you have $3k cash available?
3) What is your risk tolerance?

[Gina23]

I had 29.3 years left on my 5.75% mortgage and refinanced for a 4.25%... it cost about the same as what you are thinking... about 3k after all was said and done (that included part of the escrow and the inspection. As someone already said, it's only worth it if you stay in the home. It made a pretty good sized dent in my monthly payment, however, I didn't notice because I just kept putting it all toward principle

[gattaca]

Hi everyone,

Thanks for the feedback. I'm actually back in the US. Forgot to change my location.

The balance on my loan is approx. $250,000. I am just looking to lower our monthly payment if I can and see if it is worth it. My husband was laid off last month. We can make the currently monthly payment on my salary but it figured it didn't hurt to see if we can pay something lower.

Quickenloans offered me a 30yr fixed at 4% today. $2K closing costs. Said we may be able to use title insurance from last refinance we did one year ago.

[jpg7n16]

Originally Posted by gattaca

Hi everyone,

Thanks for the feedback. I'm actually back in the US. Forgot to change my location.

The balance on my loan is approx. $250,000. I am just looking to lower our monthly payment if I can and see if it is worth it. My husband was laid off last month. We can make the currently monthly payment on my salary but it figured it didn't hurt to see if we can pay something lower.

Just based on the math from your initial 4.1% quote, that refi would only save $80/month.

Quickenloans offered me a 30yr fixed at 4% today. $2K closing costs. Said we may be able to use title insurance from last refinance we did one year ago.

This would be much better. Save $1000 on costs, have lower interest, and save approx $94/month on your payment.

[gattaca]

I think I will actually save around $150 since the orginal loan was for $268K. We paid down a bunch this past year so I will refinance for $250K.

Thanks everyone for the input. It is greatly appreciated.

[vips]

I agree with Emanon. Generally mortgage can be refinanced but only if you are looking to reduce mortgage payments, as it can be done at lower interest rate. Actually if you go for the multiple refinancing then it may reduce your overall financial benefit.

[ecoadapt]

The chance to refinance a mortgage at a lower interest rate is sure to get a homeowner's attention. But it's not always the right decision. Instead, it's good to put some thought behind the timing of your decision.

[PauletteGoddard]

Originally Posted by gattaca

I am currently in a 30-yr fixed rate mortgage at 4.5%. I have 29yrs left to go. I was recently offered a rate of 4.1% for a new 30-yr fixed rate. I would have to pay around $3k for closing costs. I would save about $100/mo.

Should I refinance? Or at what rate would you refinance?

I am thirteen years into my house. I have refinanced twice. Here are the conditions for each mortgage I had:

Time____Mortgage__Rate__Term__
1Q1999: $184200, 6.675%, 30 years
3Q2003: $175000, 5%, 20 years
3Q2011: $120000, 3.75%, 12 years

The Rate and the Term each are reduced, and the mortgage amount is smaller each time. My monthly payment in each subsequent mortgage was 10% less than the last payment of the prior mortgage. My first refinance's closing costs were $1800, the second refinance had no application costs, but I had to bring $1670 for escrow. My mortgage at present is scheduled to end in Aug. 2023, five and a half years before the first mortgage would end. I chose to refinance when the Rate, Term, and Mortgage amount were all lower than the original conditions, and with a mortgagor who could give me a break on closing and application costs.

Would the $100 savings per month be in interest, principal or both? I would refinance at 3.75% at 20 years.

[PetMom]

4.1% is pretty good. I wonder if interest rates might go a bit lower, under 4%.

You can roll the closing costs in the loan.

If you plan to stay there for a length of time might be a good idea.

We refied this past spring and are glad we did.