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Itching to refinance again...

July 12th, 2011 at 09:05 am

I am getting that itch to refinance again.

I heard an ad on the radio about refinancing, how a 30 year mortgage is silly. That 15 years is the way to go.

I know this...This is what Dave Ramsey says over and over.

My Story:

July 2010 I refinanced my house, I had just gotten divorced and the refinance was to get my Ex-Husband off the mortgage. I went down in interest from 5.45% to 4.25%, by paying points. I also removed the escrow account from my mortgage so I was no longer loaning the mortgage company $3000-$3500 a year interest free. I got a 30 year mortgage.

It is now July 2011 one year later, I have made approx 10 payments on my mortgage. I ran the figures...Interest rates on a 15 year mortgage are 3.75% for zero points which is only .5 down from what I am paying. That is a savings of $55 per month in interest, it would cut 14 years off my mortgage and my payment would only go up by $300 per month. The closing costs are approx $3,000.

I can afford $300 more per month in mortgage and absolutely LOVE the idea of 15 year mortgage instead of a 30 year. Next year I was planning on paying extra on my mortgage and I was wondering if it makes sense to refinance.

I can afford $600 more in payments per month and still be within the 29% mortgage debt limit.

I just ponder the thought that the savings of $55 per month in interest should count for something even if my payment per month does not go down, since I am cutting 15 years off the loan and 59,850 in payments, and 9,990+ in interest .

What to do, What to do??

PS I ran a mortgage calculator and if I just paid the extra $302 to my current mortgage vs refinancing the difference is a YEAR and spending and additional $14,285.85 in interest.

Sure looks like a no brainer to refinance EVEN if it is not a 1% rate reduction. What do you think?

8 Responses to “Itching to refinance again...”

  1. patientsaver Says:

    If your closing costs are $3,000 and you'd be saving $55 a month, then the breakeven point would be 54 months from now, correct? If you definitely plan to remain in that house at least for another 4 1/2 years, it sounds ok to me. You won't actually be saving any money until AFTER 4.5 years pass, in other words.

    Paying off the mortgage early and getting a low rate is great, but remember you have to look at your closing costs becus what you're saving in monthly interest you're paying in those upfront closing fees, of course.

  2. Petunia 100 Says:

    Pay $3000 now to save $55 per month? Doesn't seem like a good idea to me. The 54 month breakeven point ignores the time value of money, so actual breakeven is even further out.

    You're also locking yourself into a higher payment.

    Personally, I wouldn't do it. If you want to pay your mortgage off early, that is easy enough to accomplish without a refi.

  3. omegaking Says:

    thanks for content

  4. patientsaver Says:

    You know, Petunia is right. I'm sorry, but i scanned your post rather quickly and i glossed over the fact that you were going to a 15-year mortgage with higher payments. To me, that a serious risk to you becus what if you lose your job? Then those higher payments are really going to be tough.

    I should know. I was laid off in 2009 and have been extremely underemployed for nearly 2 years now. If it hadn't been for the fact that I put down 45% of the down payment when i bought my house 15 yrs ago, well, i likely would have lost it becus my monthly mortgage would be so much higher than the $1200 it is now.

    But i'm a huge proponent of prepayments. I know you love the idea of paying off the mortgage early and i don't blame you! But why not just do that voluntarily, without having to be locked into the higher payments? That way, you have the flexibility to keep prepaying, assuming you're disciplined enough to do so, while you are working and have the extra cash, but can pull back, as I did, in the event you lose your job.

  5. LittleMsMom Says:

    I should explain where I get $50 savings from. That is how much the interest went down the first month using a mortgage calculator.

    The real savings in the reduced interest rate is that I would save an additional 14,285.85.

    If I paid the same amount each month, one with my current interest rate and one with the reduced interest rate; the lower interest rate one would have 8 less months of payments and an additional savings of 14,285.85 in interest.

    I really really want to refinance BUT, I think I will wait until Sept 2012 to see where the rates are. Sept 2012 I am going to start hitting the mortgage hard. If all goes well, I will be funneling all my extra money into it, so I can be mortgage free by the time my current contract is up for renewal. If rates are still 3.75 or lower I might refinance then.

  6. MonkeyMama Says:

    Having done both, I prefer the 30-year motgage. Far more flexibility. I personally wouldn't do it. 4.25% or 3.75% - in the grand scheme of things - both are AWESOME. Prepay when things are good. Keep the lower payment for when things aren't so good.

  7. debtfreeme Says:

    I would just apply the extra you have now ($600 a month) to the mortgage and call it good.

  8. Jerry Says:

    My initial thought was WHY NOT!? But after reading a few of the suggestions I think that the thing that leads to the most security and the best insurance against a financial problem might be to keep the mortgage you have, and prepay like a monster whenever you can. That way, at least you are not stuck if there is an emergent situation. Good thinking, though, I like it...
    Jerry

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