When NOT to refinance...

When NOT to refinance…

With the ongoing frenzy over the low mortgage interest rates, when does it not make sense to refinance your home? I receive offers to refinance my own mortgage weekly. These offers are e-mailed, snail mailed, and telemarketed at me. They all have my mortgage information that was current as of a few months ago, and each and everyone tells me that they “WILL SAVE ME THOUSANDS OF DOLLARS” to refinance through them. With so many firms telling me “NOW IS THE TIME!”
how could I even think that I shouldn’t re-fi?

Here are the basic questions to ask yourself: How long am I going to own this house? How much a month will the refinance save me in payments? The answers determine whether you will recover the costs of the refinance in the time you plan to live there. For example, if you are saving $100 a month in payments and it costs $3,000 to refinance and you are selling the house in 2 years when the kids leave home, you won’t recover the costs before you move. So don’t refinance. But, if you plan on living in the house forever, in the same example, you will have recovered your costs in 30 months. Now is the time to re-fi.

Now for the situation that many customers and most of the lenders ignore. What about a 15 year mortgage? The basic rule is if you are in a 15 year mortgage for over a year (14 years left) AND your intent is to pay off your house, then it will probably never make sense to refinance. Why? Because you will never recover the amount of the payments that you have already made over the life of a new 15 year mortgage.

Give me a call if you have this situation and want someone to run your actual numbers for you. I’ll be happy to help you determine if you are the rare exception to this rule.

Fixed interest rate for conforming loans (under $322,700) as of 4/21/03 (a.m.) are:
30 year fixed: 5.5% (APR 5.73%) payments are $1,832.26/mo
15 year fixed: 4.875% (APR 5.26%) payments are $2,530.93/mo.