kyounge1956
Thinks s/he gets paid by the post
- Joined
- Sep 11, 2008
- Messages
- 2,171
What do you look at when making a decision about whether to refinance your mortgage? I was in the bank today to price a larger safety deposit box, and noticed the rates for a 30-year fixed mortgage were below 5%. The rate on my existing loan is 6.5% so I thought this might be worth looking into even though I am planning to retire in four years. There were several people in line in front of me to talk to the mortgage banker there, and I didn't want to wait that long, so I went to the bank that holds my mortgage. They have what is called a three-step refinance, no reappraisal required, just fill out the forms. The rate for that loan is 6.125% which I thought would not be worth bothering with, but actually it would reduce my payment by over a hundred dollars a month, even if I add extra principal to keep my theoretical payoff date the same. (I plan to sell the house when I retire.)
The rule of thumb I've heard in the past is it isn't worth refinancing for less than two percentage points or less than two years, but IIRC that's assuming there are closing costs added onto the existing loan. The only other thing I can think of to check is how much of the loan I will have paid off four years from now. It wouldn't make sense to me to refinance if it would result in a significantly higher remaining loan balance in four years, but otherwise I can't think of any reason not to do it. What are the pitfalls to watch out for? What questions do you ask yourself when making this kind of decision?
The rule of thumb I've heard in the past is it isn't worth refinancing for less than two percentage points or less than two years, but IIRC that's assuming there are closing costs added onto the existing loan. The only other thing I can think of to check is how much of the loan I will have paid off four years from now. It wouldn't make sense to me to refinance if it would result in a significantly higher remaining loan balance in four years, but otherwise I can't think of any reason not to do it. What are the pitfalls to watch out for? What questions do you ask yourself when making this kind of decision?