Refi or just pay extra?
Posting because I grew up listening to and reading experts who'd say not to refinance in my situation. To them, it's too soon and not enough of a rate decrease to offset the closing costs. Does that still apply? It doesn't seem to.
We moved about 3 yrs ago. The current mortgage is 3.75% with 17.25 yrs left until paid off (was a 20 yr loan). I got a quote today for 2.75% on a 15 yr mortgage. The monthly payment would move up only slightly, but the overall savings on interest paid would be about $22,000 over the loan's life. Refinancing cost the same closing costs as a new loan, around 2,500 with the lender, which is the same lender the mortgage is with now. There was also the offer to buy half a point and get to 2.25% interest. Roughly that would cost 700 more upfront and save 3,500 more on interest over the loan. (On a side note, my coworker is also refinancing yet with the closing costs waived from another lender, but at a higher interest rate (like 3.6%), so the banks get their money one way or another.) Another co worker said, why go to all that hassle, just make extra payments to the loan and pay it off quicker, which would also mean less interest paid. It seems like I'd have to pay it off in half the time to get the same interest savings. I'm not in a spot to double my mortgage payment.
Any thoughts from the community? Too early or strike while the rates are good?
One of the better refinance calculators I've found is at:
Crucially, it considers equity in the savings & breakeven analysis.
FWIW, I think there's about $6.8k interest saved by dropping this half-point, rather than $3.5k.
Ok, so all the other numbers I did on with a mortgage calculator and then with the loan officer. The 3.5k, I roughly estimated in my head.
Thank you for the thoughtful perspective. That helps a lot looking at it in another way.
Also, I didn't mention it, but all of the loans are fixed rate. I don't like the ARMs or other options. We also paid down 25% when we moved into this house.
Get a 20 year or 15 year refinance that has enough lender credits to cover all closing costs excluding any prepaid items. Don't pay any money for a refinance. The rate may be a little higher than your quote but it will still beat what you have now. Additionally, if rates drop more, then you can do another no cost refinance for nothing out of pocket and you won't have any un-recouped sunk costs.
If you get a new 20 year, then continue making the same payment you are now, because part of the payment reduction is due to stretching the term back out to 20 years.
For what it's worth, I think rates are going to drop more. There hasn't been a drop to go along with the drop in 10 year Treasury yields yet, and there's speculation that it's due to the high volume of refinance requests. Demand is keeping he price up. Personally, I'm holding out for a bit more of a drop, as rates crept back up this week compared to last week. If I was to refinance now, it would definitely be to a mortgage with no out of pocket costs so that I could do it again soon if rates drop again.
We just looked as well. We are at 3.99% on a 30. So we have 26.5 years to go 😳. I wanted to go to a 15 and we can get it for 3.00% but rolling closing costs and escrow account into it (no addl points) takes our principal from 369k to 378k. Heck, no. But we would get 6k back from escrow in a few months (but now it's in my loan, um no). I can pay the closing fees and escrow up front as well to keep the principal the same and we will have the funds but we were going to send those funds to debt.
After looking at all the numbers, we decided....not now. The same offer or better is going to be there 6 months from now. And the refi means that you can't throw money at your debt for a few months as your loan gets sold three times and you deal with all the hassle. Also it freezes up some money we wanted to send to debt. So we decided to hold tight and let a better situation come along. I once heard the general rule of 2% off your interest rate is a YES to refi. Anything under that is a spreadsheet and some hemming and hawing.
Sounds like you are ready to go for it.
Just locked in a 15-year at 2.625% with the same mortgage processor we did our purchase with back in August. We're waiving escrow as I refuse to allow a third party to handle paying my taxes and insurance.
The rate reduction will save us over $214/month in interest compared to our current 3.5% 20 year mortgage that we got in August. The payment will be about $216 more per month than our base payment but only $80 more than what we've actually been paying. It's not no-cost though as this processor doesn't offer negative points, but I've decided to go against my original recommendation and that's okay. Break even time is about 12 months, so I can live with that. It'll save us $40,000 in interest.
I once heard the general rule of 2% off your interest rate is a YES to refi. Anything under that is a spreadsheet and some hemming and hawing.
0.5% reduction and a closing cost make-up time of less than 2 years. You don't even need a spreadsheet as you can use this calculator....
If you plan to sell before the loan payoff, look atthe row that corresponds to how far in the future from now you expect to sell.
If you are elongating your term compared to your remaining loan, then you should also continue to make the same payment you're making now, and you can plug that payment into the calculator instead of the amortization payment.