Financing in 07307>Question Details

Lance, Home Buyer in Jersey City, NJ

Refinancing...Is it something I should consider?

Asked by Lance, Jersey City, NJ Sun Dec 21, 2008

Bought a home 3 months ago with a 30 year rate of 6.75%. What are the costs to refinance my loan at a new lower rate?

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Despite closing three months ago, it may make sense for you to refinance. Ultimately it will depend on how long you're planning to stay in the home (assuming you live there) and if you have an itchy trigger finger to refinance everytime rates drop 0.25%. To determine that, lets look at a couple scenarios that you could put your situation into.

I'll put mortgage amounts here with your current payment (assuming no PMI) and what it would be next to it (since I don't know your credit, I'm going to be somewhat conservative here and say 5.25%). I'll estimate closing costs to be $2000 (with no points to buy it down for this example, break-even may vary depending on loan size and typical costs for an area)

$125,000 mortgage - $810/mo --- $690/mo -- 16.7 months break-even
$200,000 mortgage - $1297/mo -- $1104/mo -- 10.4 months break-even
$300,000 mortgage - $1945/mo -- $1656/mo -- 6.9 months break-even
$400,000 mortgage - $2594/mo -- $2208/mo -- 5 months break-even

If you're looking to sell or flip this home in less than the period corresponding with your loan amount, it's probably best not to do anything. If you're planning on staying there longer than the break-even, it probably makes sense to do something.

If you're the type of person who will want to refinance everytime rates drop 0.25%, it may be better to to take a slightly higher rate in exchange for a portion of your costs to be covered by the lender (to decrease your break-even period). This scenario works best with larger loan amounts.

Disclaimer: This scenario doesn't apply to everyone, please be mindful of where you are in your amortization schedule. For lance, this may make sense but others it may or may not be depending on what your long term goals are. Individuals much further into their repayment will want to review their payment schedule and decide if they want to restart their mortgage again or if they'd like to structure the loan to pay it off in the same amount of time paying less interest or to simply lower their monthly obligation without regard to long-term interest accrual. This piece is too difficult to cover here with just one post, contact me directly for a personalized analysis if interested.

Rob Weber
Wells Fargo
Web Reference:
1 vote Thank Flag Link Sun Dec 21, 2008
Hey Lance,

It depends on a couple of things. If you are going to sell the house in the next year or so it may not make sense to refinance. That being said you can find mortgage rates as low as 4.9 percent right now, so there is a ton of money to be saved. Just as an example, if you have a 400k home and 6.75 percent mortgage, then you refinance it to a 4.9 percent you will be saving about $459 per month. That is a ton of money.
Closing costs will depend on your home price but the should not exceed about 4K.

Good Luck Lance!
0 votes Thank Flag Link Sun Dec 21, 2008
From what you wrote it sounds like a really good time to refinance. You would save thousands in interest over the life of the loan. If you go to my website there is a refi interest saving calculater that you might find useful. I'm also available to answer any questions you may have.

Thank You,

Dominique Ressurreicao
Co-Branch Manager
American Pacific Mortgage
0 votes Thank Flag Link Sun Dec 21, 2008
Most lenders can work with you with regards to their costs - the only things that will be set in terms of closing costs will be the title insurance, closing fees and escrow fees.

However, you should strongly consider the refi since you can get a rate almost 2% points lower than what you have.

Feel free to call me if you have any questions
Luke Allison
Flagstar Bank
0 votes Thank Flag Link Sun Dec 21, 2008
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