Worth it to refinance?

[Gusteau]

What is the rule of thumb for refinancing a mortgage?

We are currently 2.5 years into a 30 year fixed loan at 5.14%.

I can now get a rate of 4.67% for a 30 year fixed loan through my pension program.

My 4th grade math indicates it will save us about $126 a month. I'm thinking this is a good idea, but I want to make sure I'm not missing something here.

Any input would be welcome

 

[stinkybell2]

I have heard it does not make sense until it is a full percentage point lower. The closing costs, etc. will outweigh the monthly savings. I guess it would depend on your costs to refinance.

 

[moonbeams4]

What are your fees for refinancing. Will you be in your house long enough to recoup that through the $126 month savings. I say if you are, then go for it.

 

[HeatherC]

You could also check and see if they have a 15 or 20 year mortgage for about the same rate you are paying now. Your payments would be about the same, BUT you could knock 10-15 years off your loan and be mortgage free a lot quicker!

 

[Toby'sFriend]

what do you mean through your pension program?

Are you borrowing against your own pension or is it just another benefit offered by the company?

 

[Gusteau]

what do you mean through your pension program?

Are you borrowing against your own pension or is it just another benefit offered by the company?

I wouldn't be borrowing against my pension. Its a benefit of being in the pension system - they offer mortgages below standard lending rates.

 

[Gusteau]

What are your fees for refinancing. Will you be in your house long enough to recoup that through the $126 month savings. I say if you are, then go for it.

We are planning to stay in the house at least until the kids are all done with college - 20+ years. So we would definitely make back the fees after a few years. I guess I might have answered my own question there

Thanks to all for the replies

 

[MaryKLady]

I have heard it does not make sense until it is a full percentage point lower. The closing costs, etc. will outweigh the monthly savings.

I agree. Also, if you can, put an extra $100 a month toward your principal it will cut it to 20 years. It will also save you a ton of $ in interest over the life of the loan.

 

[ess]

They say a 2 point difference. Just remember your saving $126 but tacking on 2 1/2 yrs back on to your motgage. Have you figured out the difference on that? It might be wiser to make 2 additional payments a year to principal instead of refinancing right now.

 

[Luckymomoftwo]

If you DO decide to refinance, I have another "tip" to get the most out of it. Close at the beginning of the month and don't make that month's payment on the mortgage you are paying off. Then, you skip that payment and the following month's payment. For instance, if your house payment is due March 1st, close the refinance transaction on or after March 2nd. Your first payment will be due on May 1st. So you skipped March and April payments. Sure, your pre-paid interest will be a little bit higher, but it's not as much as what your mortgage payment would have been.

You may also qualify for what's called a "streamline" refinance...ask your lender. That cuts the process time in half. AND you may not have to have an appraisal done...that will save some money on your closing costs.

That's an AWESOME rate you are getting!

 

[Gusteau]

They say a 2 point difference. Just remember your saving $126 but tacking on 2 1/2 yrs back on to your motgage. Have you figured out the difference on that? It might be wiser to make 2 additional payments a year to principal instead of refinancing right now.

Mmmm... good point.

It looks like it would cost me $6000 over the long term if I refinanced when you add in the additional 2.5 years of payments.

Thanks guys

 

[BettyCv]

Mmmm... good point.

It looks like it would cost me $6000 over the long term if I refinanced when you add in the additional 2.5 years of payments.

Thanks guys

Check to see if they can write the new loan for just the remaining months (ex. 330 months instead of 360) I *think* they can do that, but I'm not sure.