Should I refinance?
About 18 months ago, we did a cash out refinance to deal with an emergency financial situation (I know, I know: that was pre-YNAB! Now we have an emergency cushion and sinking funds!). Thankfully, we did manage a lower interest rate at that time, so it was not a total disaster. It was calculated that the costs would be recouped within 4 years (or 2.5 years from now). I'm wondering if it would be insane or wise to refinance again. The details: We currently owe about $150,000 on a house worth about $215,000. We have a little less than 16 years left on this mortgage, which is at 3.375% interest. If we decided to stay in this house until it is paid off, at what point would a refinance make sense? I see some banks advertising rates in the range of 2.5% APR for 15 year fixed. I've tried the refinance calculators but I am still befuddled about how to factor in not yet having recouped the cost of our last refi... and it's also a bit tricky to know exactly what the exact cost with any particular lender would be. So I don't know if this is just splitting hairs at this point, or if the math is on our side.
Full disclosure: we have other things to mull over, too, like whether we can really commit to staying in the house that long term, but it would help to have the financial part straighter in my mind. I knew I could turn to the wisdom of the YNAB board--so thanks in advance to anyone willing to weigh in on this!
But if I have 13ish years left now, do I have to do some maneuvers not to basically refinance the last year I already paid?
No. You refinance the current balance. You pay extra to principal to keep paying the same amount as you do now, or at least enough to change the 15 year end point to 13 years. Making the same payment as you have now would shorten a new 15 year loan to less than the time remaining on the current loan because it's the same payment but less interest paid with each payment, so more going to principal.
For example if you have a $200k mortgage balance the interest on the next payment at 3.125% is $520.83 on a payment of about $1550. The lower rate on a new loan would have a payment of $1435.37 and first month interest would be $437.50. So interest is lower and payment is lower.
If you make the same $1550 payment at the new interest rate you'll be done in 12.5-ish years and save $8900 in interest. So you would not want to pay points to get that rate as it would cut into the savings significantly.
In this scenario a $1498.60 payment would be enough extra to end at the same point as the current mortgage.
Paying points seemed to make some sense to me last time because I know I'm not leaving my house unless I win the megamillions or something, and probably not even then!
It may or may not make sense. Paying points gets you a lower rate by paying interest up front. So you are really paying a higher rate than the interest rate (that's why they also show an APR which is higher as a way to compare costs). The points are a sunk cost. No matter how long you hold onto the current mortgage you can never make up that cost staying at your current rate when compared to what you will pay by refinancing to a lower rate with no costs.