Profile picture for radinsmore

When should you refinance? What is the trigger point in interest savings? 1/2%?

Does it make sense to refinance to save .37% on $404,000 30 yr fixed loan? 
  • August 10 2011 - Highlands Ranch
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Answers (9)

This truly depends on loan amount. lower loan amounts require a bigger difference whereas a half percent on a larger loan may make a lot of sense!!
  • August 29 2013
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Warning - Warning - Warning
It's a simple math question:
How much total interest will you pay with your current mortgage?
Then, if you refinance, and re-amortize the mortgage, how much total interest will you pay?? Add in the loan costs.
Paying $200- a month LESS on a NEW mortgage may be more expensive than keeping the old mortgage.
Simple math.
Lower payments for MORE years is not necessarily saving you money.
  • August 29 2013
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Profile picture for sunnyview
Probably not depending on how much the refi costs and how long you plan to stay in the house, but you can use a refinance break even calculator like this one here to run some numbers.
  • August 10 2011
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The fast answer is...It totally depends on your individual circumstances.   Those rules of thumb about .5 or .75 or 1.0 are just that.  Rules of thumb and not based on a specific set of circumstances.  They make many assumptions.

Are you looking at a 30 year payoff?  Or will you sell the home in a few years?  Or will you pay it off in 10?  (if either of the later two, you might consider an ARM for a greater monthly savings).  If you will pay it off in 30 years, how many years into the current loan are you--and more importantly how much interest have you already paid?   What are the costs of the refinance?

Add up how much you have already paid in interest on your loan (add in another 60 days worth to be safe) and then add in the closing costs.  Lets call that number "Sunk Costs"

Now, take the savings you get from that .37 which is probably about $90/mo.  $90 times 360 payments (30 years of payments) is about $32,000 that you will save in lower payments.  Lets call this number "Savings."

Sunk Costs - Savings should give your answer.

I'm sure you can see if you had already paid down $50,000 in interest then, this would be a bad proposition. 

Another thing to consider.  See what it looks like going to a 25 year amortization.   Then you don't have to start over again (if you are less than 5years in that is).   Feel free to get in contact with me for a more in depth analysis.
  • August 10 2011
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What rate do you have now?  How much equity?  FICO score?



Tell us a bit more about your situation and perhaps we can help you with the decision.
  • August 10 2011
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Profile picture for radinsmore
What I just heard from a number of phone calls is that financing typically does not make sense unless you can save 3/4 to 1%.  The loans I see carry refinance fees that are too high and increase my balance.  I've decided therefore not to refinance at this time.

Thanks for everyone's answers...they've been very helpful.

R. Dinsmore
  • August 10 2011
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.375% is not much of a savings in rate if there are costs involved with the refinance.  Is this a no-cost offer?   What rate and terms are being offered to you?


Rates are awesome today so now is the time to evaluate your options.
  • August 10 2011
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Profile picture for David Widlund
It makes sense when you can better your position without increasing your balance significantly. Or, if you can significantly reduce the term of your loan with minimal expense.

It's surprising how easy it is to go to a 15-yr loan from a 30-yr loan if you have paid a few years. The rates today are so low that you need to do a little poking around.

Good luck!
  • August 10 2011
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Profile picture for shapiroamg
Depends on the monthly savings and the costs. If the lender/broker can cover the costs with a credit, then its probably worth doing.  To get a better opinion let us know the following:
orig loan amount
current balance
current rate
estimated current value
  • August 10 2011
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