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.”

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