Home Refinance - Can't decide

[ukgaz]

So we brought our first home last year for $180k and obtained a loan for $175k with a rate of 4.75%. Our monthly payment is $1285 including pmi, etc. We have just made our 13th monthly payment. (I also try to make additional principal payments each month ranging from $25 to $100).

We currently owe $172,400.

Now we have been getting lots of offers to re-finance at a lower rate of 3.75%. If we do this we will have to pay the normal closing costs and our payment would be lowered by about $65 per month. We worked it out that if just paid the $1285 a month at our current rate in 10 years time our balance would be around $141k. But if we re-financed at the lower rate and added that $65 to the principal then our balance would be $129k in the same time period - a difference of $12k.

Now a saving of $12k makes this worth it - if we stay for at least 10 years.

However when we brought the house we had the intention of staying here 7 to 10 years. But things in our financial health have changed since then. My wife got a small pay increase and I start my new promoted job tomorrow with a 15% pay increase. I have been told that 12 months from now I can expect another big increase as they wish to move me off hourly pay to salary. Our combined pay is 100K gross per year

Now with this extra income we are thinking we could move in 5 years to a bigger house (currently we are in sqft: 1056. Now if we do move in 5 years the re-fi does not make sense - correct?

So what does the forum think? Now if house prices fall even more over the next few years then we cant move. But no crystal ball to know that now! If the savings was over a $100 a month then I would probably say yes.

Our age is 31 and 35.

Thanks in advance for your views

[jpg7n16]

So what is your question?

a) should you refi? or
b) should you buy a larger house because you got a raise?


Are you saying that your current house doesn't meet your needs?

What closing costs would you have to pay out of pocket to refi?



I'll tell you up front, just because you got a raise doesn't mean you need a bigger house. Your house needs should not be determined by your salary, but by... your housing needs

[ukgaz]

Question is should I refi if we only plan to stay for 5 years? I agree that getting raise does not mean bigger house. That was/is never the plan. The house we have now is a small family starter home (we planning for first child next year) and we always planned to eventually move to a bigger home that we would probably spend the rest of our lives in.

The extra money from my raise is going to retirement/ pay down mortgage

[jpg7n16]

And what closing costs would you pay out of pocket to refi?

[snafu]

Your question leads to other questions...Did you buy with a 20% downpayment? Are you required to have mortgage insurance? Once your new pay is established, would you consider negotiating fees and closing costs with the companies that are offering lower interest rates since these are discretionary on the part of the financial institution?. Do you plan to continue to make the same payments with the extra amount going directly to principal?

Those sums are significant long term in reducing your outstanding mortgage. The less owed on your mortgage at the point in time that you decide to sell has the potential for a larger down payment for your next house. Of course it's critical to run the numbers so that you know whether the savings are significant over 5 yrs.