I closed on my home 5 months ago with a mortgage rate of 4.875. Is it worth it to refinance? I see all the claims of 3 percent and lower.

Asked by Gary

6 Answers

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Answered by Chad Freeman, Branch ManagerPRO+ in Bethesda, MD
Hello Gary:

Refinancing to a lower rate always seems to be a great idea, but the question of it being "worth doing" is a different answer for everyone since it depends on many individual factors. One also needs to consider the cost to refinance as well as the length of time one intends to stay in the home. A common rule of thumb that many people use is refinancing when they can obtain a rate of one percentage point (or more) lower than their current rate. I don't personally subscribe to this philosophy because I have had clients where based on their personal circumstances (as mentioned above), a 1/4 percent drop in the rate was sufficient enough to make it "worth it". Lastly, you mention claims of "3 percent or lower"; this would appear to be offers for adjustable rate mortgages and not 30 year fixed rate mortgages.

Your best bet is to speak with a qualified loan officer that can look at your entire situation and make the right recommendations. Good luck. | 10.06.14 @ 20:09
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
Answered by Ted Rood, Mortgage BrokerPRO+ in Maryland Heights, MO
The answer to your question depends on several factors: how much did you put down on the house; do you have the capacity to cover any closing costs or escrow setup on the new loan; how large is your loan; and do you have a reliable lender to make the process as stress free as possible. Chad's right that 30 year fixed rates have never been 3%, they are running around 3.625% to 3.75% for "best execution" borrowers now (and many folks aren't "best execution" which means 760+ score, 25%+ equity, single family, owner occupied home). It's a shame some lenders feel compelled to advertise in a manner that relies on "unachievable" rates to generate phone calls. Lastly, remember that rates change daily, and often times even during the course of a day. Any mailer, printed ad, or TV/radio ad that quotes specific rates may well be outdated the minute it is produced. | 02.06.15 @ 04:59
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
Answered by Paul Carag, Financial Adviser in Renton, WA
Hey Gary - I agree with Chad and Ted, so there's not much more to add other than the 'math' we subscribed to when we were mortgage professionals from 1989-2010. It was this...how soon would you recoup the cost of refinancing your loan? It should take no longer than 24 months maximum and the refinance should save you a minimum of $250 a month in payment. If not, we advised against the refinance unless the client had their heart set on it, but we shared our two cents. | 04.16.15 @ 17:51
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
Answered by Julie Cline, Insurance Agent in Monrovia, CA
No, it's foolish. Don't be greedy: 4.875 is a fantastic rate. If you want to save money, pay down the principal balance. | 06.23.15 @ 15:40
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
Answered by Michael Beiter, Financial Adviser in Murrieta, CA
Gary- A general rule is if you can reduce your rate by 1%, for example 4% to 3% than most cases it makes since to re-finance your loan. | 12.15.15 @ 22:11
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
Answered by Ted Rood, Mortgage BrokerPRO+ in Maryland Heights, MO
One thing I'd add to my prior answer, Gary, is that there's no "rule of thumb" regarding how much you need to save in interest rates to make a refinance viable. The costs to refinance vary wildly from state to state, a 200K refinance in Missouri might mean closing costs of $2000 or so, but the same loan could cost 6K or more in New York or FL. Another factor involved is loan size. Incurring a cost of $2000 to drop the rate by .5% on a $200,000 loan may be a virtual "no brainer" depending on the closing costs. By the same token, spending $2000 to drop the rate on a $40,000 loan by .5% is a guaranteed way to lose money. The solution, in all cases, is to have a well informed lender with great references review your situation and give you your options, the "break even" points for them (how long it will take to recoup your costs via lower payment), and whether additional benefits can be added to the loan, such as getting some cash back, adding escrows if you didn't have and want, reducing/eliminating your PMI, or reducing your loan term. When I combine multiple benefits on the same loan, it's far more likely to be in my clients' best interests to refinance. Anyone who says "you're saving 1%, you HAVE to refi", or "you're only saving .5%, that's definitely not worth it" doesn't understand the financial implications involved.

Hope these thoughts help, if you have more questions, I write loans nationally, and can be contacted through my profile. Thanks, Ted | 06.01.16 @ 03:16
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$commenter.renderDisplayableName() — {comment} | 12.02.16 @ 22:21
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