Asked by dmarin9  |  Submitted June 20, 2016

I am 8 years into a 30-year conventional mortgage with an interest rate of 5.48%. Is refinancing a good idea?

I paid $164,000 for the home and currently owe $127,000.

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  Answers  |  2

June 20, 2016

Probably. Know why you're doing it, though. Are you trying to lower your monthly payments? Accelerate your payoff? Just reduce total interest expense? Those are 3 very different goals with very different refinancing plans.

A new 30-year mortgage at a lower rate will reduce your monthly payment and improve your cash flow. What you do with that extra money (maybe add it to your emergency fund?) is up to you.

A new 20-year loan with an even lower rate will save you a bunch of interest expense, and speed up your payoff by a couple of years.

A new 15-year loan at an even LOWER rate may increase your monthly payment only slightly, but win you a terrific low rate and save a ton of interest over the life of the loan.

$commenter.renderDisplayableName() | 09.23.20 @ 07:29


June 28, 2016

Let's look at some numbers. $127K with 22 years to go @5.48% looks like about $829/mo. As Greg offered, a 15 year loan refi could be about 3.5% with a cost of $908/mo. $80/mo extra to knock 7 years off the loan. Tough to pass on this deal. Think about this, you would literally be paying $80/mo for 15 years for a return of $829/mo for the 7 to follow. That's an amazing return.

Or, at 4%/30 years, you'd cut your payment to $606, and save $223/mo. The only time I'd even consider this? If you said "Joe, my budget is so tight, I am ignoring my opportunity to get matched 401(k) deposits." In which case, if that's truly the case, and you'd actually start your 401(k) deposits, this dollar for dollar match shouldn't be ignored.

Aside from the contrived 401(k) opportunity, the idea of knock off 7 years at suck a small monthly cost is a nearly too good to be true opportunity. A paid off house is the dream of many and reality for few.

$commenter.renderDisplayableName() | 09.23.20 @ 07:29