Asked by John  |  Submitted April 16, 2015

Should I refinance a 20 year adjustable, 2%, adjust in 2018, 3 years into loan for a 20 year fixed 4.2% savings of over $300 per month?

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  Answers  |  3

April 16, 2015

Good morning John. I would say 'it depends'. Having been a mortgage professional for 21 years until the end of 2010 - I've seen it all. I always ask the question "what are you trying to achieve." In my experience, most do not realize that a shorter term mortgage might affect their debt to income ratios should life happen. It was always my practice to show them a 30 year mortgage and what they could pay additionally to principal only to have it operate the same as say, a 20 year mortgage. The advantage is this - should there be an emergency, then they aren't burdened with the higher mandatory mortgage payment that a shorter mortgage and have more control of their cash flow. We also made sure that if we performed a refinance that our client recouped the cost of the loan in 24 months or less and saved a minimum of $250 a month, which sounds like you are. I would advise you to research what the 30 year mortgage would provide and what you would need to pay additionally to have it act as a 20 year - compare the payments, the savings in interest and the debt to income ratio. Do the math and it should help with your decision - as well as how long you think you might hole the loan/stay in the house.

$commenter.renderDisplayableName() | 09.29.20 @ 12:39


May 24, 2016

Yes, it sounds like refinancing is a good option for you in this situation.

$commenter.renderDisplayableName() | 09.29.20 @ 12:39


June 01, 2016

Hi John,

Your numbers are a little confusing. You state you're 3 years into a 20 year adjustable loan at 2%, and want to refinance into a 20 year loan fixed at 4.2%, SAVING $300/mn? That's not possible. Extending the loan term by 3 years won't offset the significant rise in your interest rate. Let's say your initial loan size was 500K (yes, I understand it's likely far less). The P&I at 2% for 20 years is $2529. If, for the sake of this discussion, you now owe $475K, a new 20 year loan at 4.2% (which is NOT a good rate for a 20 year loan, barring serious credit difficulties) would be $2928. so almost exactly $400 MORE than your current payment.

If you have more details, love to hear them. I write loans nationally, and you're welcome to contact me through my profile. Thanks, Ted

$commenter.renderDisplayableName() | 09.29.20 @ 12:39