What should we consider with a mortgage refinance?

Question by Max R: What should we consider with a mortgage refinance?
We can knock a full point off our mortgage rate and reduce our term from 30 years to 15 years and add only $ 300 per month on our payment. We can afford it the extra payment….is there any reason for us not to do it? They’re even knocking off closing fees. What other considerations should we make? What other fees will there be?

Best answer:

Answer by MVD34
At a minimum you need to see the good faith estimate and ponder (1) your long term job prospects and (2) how long you really, truly expect to be in your current home.

Assuming (2) is at least 7 years…

(1) is important in the sense that a 15 year mortgage is, essentially, a commitment to paying off your mortgage in full at a fast pace. If you don’t have long term job security and a fully funded savings position, a 15 year mortgage could be a mistake. This is particularly true if the new monthly payment (P&I plus taxes & insurance) exceeds the average rent in your area by a good bit or your other financial commitments are large or numerous.

The good faith estimate should spell out exactly how much the refi is going to cost you (they are never free). It is usually financially unwise to refi when the payback period is more than half the time you expect to remain in the house or if the cost being added to your new mortgage (to pay for the refi) exceeds your idea of “a reasonable expense.”

What do you think? Answer below!

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One Response to What should we consider with a mortgage refinance?

  1. Home Loan Guru says:

    It sounds like you have a pretty good opportunity here but it’s important to look at a few factors:

    Are you planning on staying in the home long-term?

    You said they are knocking off closing fees…make sure you obtain a good-faith estimate which will outline the fees (as they vary by state). It may be that some of the fees are rolled into the loan versus asking you to bring it to the closing table.

    How many points (each point is 1% of the loan amount) are you paying to obtain the rate? What is the break-even point for that investment so that it is worth your while? What will your actual savings be?

    What is the rate on this 15-year mortgage? Make sure it is competitive. On Quickenloans.com, today’s 15-year rate on a $ 200,000 home with zero points is 3.75%.

    Just a few things to consider before signing on the dotted line. Hope that helps!

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