Refinancing Am I missing something

[sam_gordon]

I'm looking around at possibly refinancing our house. We're almost three years in from our last refinance (Feb. 2009). The rate my lender came up with saves ~$110/month. Sounds good, right? But there's $2000 in closing fees (yes, they get rolled into the loan so I'm not "out of pocket", but still have to pay them). That means it would take 19 months to "break even", and adds three years onto the loan (trying to get info on a 20 & 25 year, can't afford the 15).

To me, that doesn't really make sense to do.

 

[kathie859]

You're right......it doesn't make sense unless you can refinance and not add term and still save money. Another way of looking at it (only if you plan to stay in the house and pay it off) is to multiply and remaining # of months on your current mortgage x the principle and interest payment. Then multiply the new term x the new P+I payment. I think that will show you if you're saving any money once you factor in closing costs.

 

[AnnaS]

I personally would not do it.

 

[LindaBabe]

I wouldn't either - I'd try adding an extra principal payment a year to get your existing loan paid off faster and save interest that way (unless your current loan has a prepayment penalty)

 

[DawnM]

It may not make sense. You really need to run the numbers and see if it saves you overall.

BankRate.com has some calculators. Run the amortized list and see what the total interest paid comes to on your current loan vs. refinancing.

For us, it wasn't at all about the payments going down per month, although that was a perk. It also saved us about $30K in interest over the life of the loan. We have a 15 year and got another 15 year but we went down over a point in interest.

Dawn

 

[Princesca]

OP - your current mortgage is a fixed rate, yes?

I think you just have to run the numbers. I considered refinancing ours again, but we're at 4.75% as it is and will probably (if all continues apace) have our 28 year mortgage paid off in five years, so it really doesn't make sense for us. But if you think you'll need the whole term, it might be worth it over the long haul.

 

[DisneyBill]

Have you looked at http://www.nationalmortgagealliance.com/nocost/nocost_index.aspx
Lots of positive feedback available online, and also at bogleheads.org.

 

[ICF]

We refi'd through a local bank and the closing cost (including appraisal) were only $250 or so. I wouldn't pay 2,000 in closing costs.

 

[neatokimmo]

Depending on how much equity you have, some banks will do a HELOC loan to pay off the mortgage. For my bank is it zero fees, based off your tax assessment. 3.25% for 15 years. I had to do that while I was shuffling payments around trying to sell a second house. It is a lot more flexible than a mortgage, whenever I pay a big chunk off, I can have them reduce the credit limit on it.

 

[JoiseyMom]

We are refinancing also, going down over 1.5 in interest, but we can't get away fron NJ title fees...they vary but are still too high.

 

[corndog]

Of course you should do it. I don't think you are think about it the right way. Assume you continued current dollar amount of P&I payments on new loan. If in doing so you would pay off your new loan sooner than January 2039, then you do the refi. Plus, it gives the added flexibility to deal with life's curveballs and drop back to the low payment.

If you're not planning to move in the next 2 years, it sounds like a no brainer to me.

 

[Sheree]

if you have 27 years to go, see what a 25 year would cost you. then figure the 2 years of interest savings. that will help you determine if worthwhile. rule of thumb is 1% below current rate with 0 points. fees of 2k might be right, ie appraisal, credit, flood, title adn recording

 

[Suz D]

I'm looking around at possibly refinancing our house. We're almost three years in from our last refinance (Feb. 2009). The rate my lender came up with saves ~$110/month. Sounds good, right? But there's $2000 in closing fees (yes, they get rolled into the loan so I'm not "out of pocket", but still have to pay them). That means it would take 19 months to "break even", and adds three years onto the loan (trying to get info on a 20 & 25 year, can't afford the 15).

To me, that doesn't really make sense to do.

Is the $2000 all closing costs or is some of that pre-paids? We had to pay a certain amount of interest (from the date of close until the end of the month) plus we had to pay homeowners insurance for the year and the taxes as well. All of that was held in escrow on our previous loan so we'll be getting a refund from our old loan to help offset part of the $$ needed at closing.

We didn't want to roll our closing costs into the loan because we didn't want to pay interest on it, but not everyone is able to do that. On our last refi (in 2009) we rolled the closing costs into the loan. We went from 6.25% when we bought the house in 2008 to 4.62% when we re-fi'd in 2009 and then to 3.25 when we re-fi'd again this month and dropped to a 15 year.

So I guess my point is, if part of the $2000 is pre-paids, that part isn't really costing you $$ that you need to break even on.