Refi Question

[rizzmo]

Hi everyone. DW and I have been going back and forth over refinancing my mortgage. Currently, we have $90k @ 6.125% 30 year fixed mortgage. We received the mortgage 2 years ago and have been paying an additional $500 towards principal each month since day one. Our credit scores are 701 and 705 as of this month. Our $642 a month payment is principal and interest only, no PMI, insurance and taxes are handled separately.

The pro's. Lower interest rate hoping to get 4.5% 30 year fixed even with less than stellar scores which would bring the monthly payment down to ~$460. Lower monthly payment means we would be more secure if something unfortunate happened. Since we would keep paying the same amount $1,142 even more would go directly to principal.

The con's. Refinancing cost money not sure how much, but it will add to our debt short term. Amortization table will start over again. Not sure that it would be worth it, with out current pre payment we only have 8 years left. My personal belief that refinancing is unwise for most of the population.

Any thoughts? Thanks!

[jIM_Ohio]

You should be able to get a no closing cost refi at 4.5%
the difference in interest cost should be deciding factor

list amount of interest you will pay in next 8 years as you pay off 6.125% note
then if you refi, list closing costs and interest paid on a 4.5% note (add two together). If its less, go for the refi.

Because you are paying down loan so aggressively, the no closing cost options might be minimum
Because you have 8 years left, you could consider an ARM and get rate under 4% which might pay off even sooner

Run the numbers- it costs you nothing but time to run the numbers, and with a good spreadsheet it might take 30 minutes.

[safari]

Totally agree with Jim. Forget about refinancing for 30 years fixed, since you only have 8 years left. Get a 7-year ARM instead. You should be able to get 3.75% with closing costs included. You'd have to pay $1,220 per month in order to pay it off in 7 years.

[Seeker]

Hi everyone. DW and I have been going back and forth over refinancing my mortgage. Currently, we have $90k @ 6.125% 30 year fixed mortgage. We received the mortgage 2 years ago and have been paying an additional $500 towards principal each month since day one. Our credit scores are 701 and 705 as of this month. Our $642 a month payment is principal and interest only, no PMI, insurance and taxes are handled separately.

The pro's. Lower interest rate hoping to get 4.5% 30 year fixed even with less than stellar scores which would bring the monthly payment down to ~$460. Lower monthly payment means we would be more secure if something unfortunate happened. Since we would keep paying the same amount $1,142 even more would go directly to principal.

The con's. Refinancing cost money not sure how much, but it will add to our debt short term. Amortization table will start over again. Not sure that it would be worth it, with out current pre payment we only have 8 years left. My personal belief that refinancing is unwise for most of the population.

Any thoughts? Thanks!

What is your goal?

Refinancing always costs (even with a "no-cost refi" there are costs; some are invisible because they are built into the interest rate -- ie. 4.5% with 0 costs versus 4.25% with points or costs).

What is your wife's goal?

If your financial situation does degrade, then the lower interest rates and longer term will help because you are not committed to a higher payment. Yes, you will be paying a smaller amount and the entire loan may not be paid off until a further future date but at least you won't get into trouble by struggling to make a higher committed payment during your "bad-times."

Are you concerned about bad times or good times? What is her concern?

During good times, you can pay more than minimum regardless of the amortization table.

Have you run any number to prove your point? You can just guess and have a personal belief, but you should not discount your wife's opinion. Running the numbers of all scenarios will prove what is best to do. If you want to argue, go ahead.

The numbers will tell you exactly whether or not it's advisable to do in your situation and only the two of you can tell whether or not your goal is to save cash flow, or finish that mortgage entirely.

[rizzmo]

Thanks for the replies. I have ran the numbers and it seems a refi does make sense, numerically. I think it also gives us a bit more security when considering a doomsday scenario and provides little downside if things stay the same or get better. Seeker thanks you for the response, a lot of things to think about. DW is half a country away helping her brother keep his business going while he is recovering from a medical illness; she has been gone 4 weeks. I wanted to run the numbers and bounce this of you guys so I have a more thought out position. I not discounting her opinion just haven't had the opportunity to discuss this with her yet.