*Question by Goddess*: Mortgage refinancing question?

Would it be worth refinancing a home loan to get a lower rate? We could decrease the rate from 6.5 to 5.5 but it would add $ 12,000 to my current loan amount. It would remain a 30 year fixed. We’d also get to skip two months of payments (which is actually added into the loan, not really “skipped”); but it’s still money in hand. The current mortgage is less than a year old. Would the refinance be worth it?

The additional money is to pay the points down to get a lower interest rate as well as the two “skipped” monthly payments which is really just added into the loan.

**Best answer:**

*Answer by scott A*

why does it add 12000 to your current loan are you taking some cash?

**Give your answer to this question below!**

I would refinance at a 15 year fixed loan. Then you can probably get an even better rate and spend thousands less over the years without too much of an increase in payments.

You know what the difference between 6.5 and 5.5 is so minimal if you look at it from a payment standpoint on a 30 year fixed rate, ask your loan officer how long it is going to take for you to start saving money on your rate cut.

Each time you refinance, you’re selling and re-buying the house, which requires a loan application fee, title search ALL over again, inspection, etc and so forth, which adds a couple thousand bucks or more onto your home if you’re not paying out in cash.

So, without knowing what your house is worth to calculate the monthly difference, you’ve already stated that the process added $ 12,000 onto your house that you now have to pay off over 30 years.

Whatever the old payment was at 6.5%, and the new payment at 5.5%, how much is saved each month and how many years does it take to add up to $ 12,000? That is your break-even point. Say your house is worth $ 500K. At 6.5%, your payment is $ 3160/mo (no tax/ins here).

Now, you add $ 12K, financing $ 512K at 5.5% and your new payment is $ 2910/mo. You’re saving $ 250 a month, but added $ 12K in debt which takes 4 years just to break even.

If you finance every year, you’ll end up owing more than the house is ever worth. And a cheaper house, say at $ 200K,would only magnify your problem worse.

You really don’t want to refinance more than every 3 -4 years at minimum, and for a lot more than a measly 1%. It SOUNDS like you’re saving money, and on monthly payments, you are, but at a tremendous long term cost to yourself. If it’s a cost to YOU, then guess who’s making the money? That’s right, that’s why they make it sound so good.

Lower your interest rate, don’t take equity out, limit closing costs and points if possible. Compare your current rate to the APR to find out if there are savings.

No. If it takes more than 2 years to payback the refinancing costs, it is generally a bad idea to refinance. Your 6.5% rate is very decent. If you took out a new loan (not a refi), today’s rate is between 6.25% and 6.375% with 0 points plus fees. A no-cost refi would probably be around 7%.

Be glad you have that 6.5% rate…it’s a good thing.

I would check with your current lien holder. If you have made all payments on time, you may be able to do a streamline where the closing costs are minimal and you can buy the rate down. Typically 1point paid in closing costs takes at least 3-5 years to recoup. If you do this refi (which I don’t recommend, your savings isn’t significant enough), make sure you cut your term to under 30 years.

Does your current loan have a pre payment penalty?

Do you need the cash for an emergency? What is your monthly savings? When will you break even? There are many websites which can do the math for you to see if it’s a good idea.

Here’s one of them

http://www.reedmc.com/refinance.asp