Should I refinance my mortage

**jpg7n16** · 07-09-2010, 11:49 AM

Step 1) How long will you own this house?

Step 2) See how much interest you save over that timeframe.

Step 3) Compare interest savings with cost of closing expenses.

(comparing loan of $359,500 @ 4.7% for 30 years vs 352,357 @ 5.5% for 28.5 years)

The 4.7% loan will have a payment of $1,864.50. The 5.5% should have a payment of $2,042.49. So you would save $177.99 per month that you stay in the home with the 4.7%.

So say you're planning to move in 1 year. 1) 1 year, 2) 12 months * 177.99 = $2,135.87 saved 3) 7-9k. Obviously a terrible choice.

Or you plan on living in the house at least 30 years. 1) 30 years, 2) over the 28.5 years (342 mos) you would save $60,872.34 in pmts, but still owe $32,344.25 for a net gain of $28,528.10 3) 7-9k. Good choice.

Your breakeven point on 9k would be 50.5 months - or just over 4 years. (7k is 39.3 months, so just over 3 years)

So I'd say, if you will be in the house longer than 5 years, refi. Less than 5, it's not worth the hassle.

**MonkeyMama** · 07-09-2010, 12:19 PM

If you can lock in 4.5%, it is probably worthwhile. I have, in general, refinanced every 1% drop down (Seems to be the sweet spot on my mortgage - saving $200/month each time). OF course, never expected rates to drop as much as they have. ORelse I would have just waited for them to drop 2%, etc.

The way I always viewed it was if I could continue to make the same payments, and pay off the loan faster (closing costs and all), the refi is generally worth it. OF course, this considers all of the factors jpg mentions, in a roundabout way. If you will only be in the home a year or 2, it obviously wouldn't make sense. I noticed you said 10 years though.

I wouldn't expect refi costs to be that high, though they could be. (Is possible to shop around and find something much cheaper). My general rule of thumb is to pay cash for closing costs. If it closing costs are still that high, and you still find it worthwhile, you could always pay cash for some of the closing costs, and roll the rest. Considering the odds of rates going down further (zilch?) and if you are really set on staying 10 years, I don't think rolling the costs is the worst thing - should be a one-time thing.

**jpg7n16** · 07-09-2010, 12:23 PM

Well wait... you would have been able to invest that $9k along the way - and I forgot to account for that. Don't worry about the math it took to get these numbers, but here are much better estimates of the true times you need to own the home based on rates of return you are able to acheieve elsewhere. Keep in mind, this is just to break even, so you should plan on living in the home beyond these times.

Slightly rounded:

1% - 4.5 years
3% - 4.75 years
5% - 6.75 years
7% - 7 years
9%+ - you shouldn't refi, but should invest

**abcfisher1** · 07-09-2010, 06:46 PM

Thx for the advise. I need to find out what the cost of refinancing will be. 3-4k I can do cash more than that and I will prolly roll some into the new loan. Looks to me that the key is staying long enough to break even on the initial closing cost. I really love my new home and plan to stay there at least until the kids go off to college. Kids are 7 and 9yo. 200 extra bucks a month can go a long way. More for investing or whatever. I truly appreciate your honest opinions.

**strigiformes** · 07-11-2010, 12:26 AM

Double post...sorry.

**strigiformes** · 07-11-2010, 12:27 AM

I just wanted to give you my experience on the associated costs. We refinanced our house last month and our closing costs were just over $7,000. We talked to only two lenders during the process, but the numbers were almost exactly the same from both.

Rates are really good right now, so I would say go for it if you anticipate staying in the house for 10+ years.

**abcfisher1** · 07-13-2010, 07:08 AM

@ strigiformes Did you roll the 7k into your new loan. Just curious.

**Stuartthomas** · 07-13-2010, 10:27 PM

i guess ronald want to say something..any one noticed here..

**zetta** · 07-14-2010, 05:29 AM

Loan Comparison - Refinancing

Loan/Refinancing Comparison This provides a very generic and flexible interface to compare two loans especially now when the rates are so low that refinancing can take place in a variety of ways (i.e. you can increase your loan balance and still pay less interest each month!). .

**abcfisher1** · 07-14-2010, 05:55 AM

Update

Ok....
I've talked to my current lender.... The idea was not as great as I originally thought...
To refinance 353K (current loan bal)at 4.64% I would save 200 dollars per mo.and only cost me 2,996 at closing which can be rolled into the new loan. (Great!)
But.. Home must appraise at least 377k for this "Great" rate...
I paid 378k 1.5 years ago.. I doubt it will appraise for that in this market.
If it appraises anywhere from a min of 358k to 377k I have to tack on the difference at closing.
And it cannot be rolled into the new loan......
And the rate increases to 4.87 on the loan if the appraisal comes in between 358k and 377k
Mind you I have Excellent Credit And an excellent credit score
zero debt and income has not changed since I bought to house. It just doesn't make sense to me. The appraisal will cost 400 dollars. Why spend to money to find out what I already know. I know I will save in the long run but the up front cost will be potentially huge.
And lastly they sent me a Truth in Lending letter which states "first 112 payments 2092.00 then the next 247 payments 1839.00. WHAT!
Thats more than I pay now for the first 10 years.
Sorry to rant but I was really hoping I was doing the right thing here. My wife thinks I'm an idiot. I mean I basically told her "Look honey I got a great idea..Let's start our mortgage over for 30 more years then increase our monthly payments for the first 10 years and it will only potentially cost us 19k at closing worst case scenario. How do ya like that honey?

**Kimber6** · 07-17-2010, 02:16 PM

You will only need 5% equity to refi so you may do better than you think. If it does appraise you should refi for sure given the drop in the rate

Should I refinance my mortage