is it worth it to refinance my mortgage if now is 4.75 percent?

Asked by Nicoled13, Prescott, AZ Thu Mar 1, 2012

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Thu Mar 1, 2012
Depends on your current loan terms, how long you've had your current loan, what rate/fees you can lock in currently and your objectives (lower payment, lower term, both, etc.)

Most of my clients who had high 4's on a 30 year fixed have refinanced to high 3's or low 4's with a NO COST and NO FEE refinance... it usually makes sense if you drop the rate at least 0.50%. The downside is resetting the term back to a 30 year and possibly paying more over the term, but if you play your cards right you can always pay your old higher payment and shorten the term from where you were originally. On the other hand, some folks don't mind resetting the term if lowering payment is more important.

Even better idea for some folks who don't like the idea of going back to a 30 year term is to drop the rate AND pick up a 25 or 20 year term. Depending on your current loan, this can lower your payment AND allow you to shave off years. But if you get the payment close to your old payment it's still makes sense especially if you dropped the rate for free.

Feel free to call me if you wish, it should take about 5 minutes to break it down for you. No obligation, I really enjoy crunching numbers and exploring different options. :)

Mike Pandazos
Metro Lending
1 vote
Dorene Slavi…, Agent, Torrance, CA
Tue Mar 13, 2012
Dear Nicoled,
Aside from having more money in your pocket every month..over he lifetime of the loan it equals big savings for you. So yes, go ahead and talk to a professional about refinance. Last time I checked the rates were 3.99%.
0 votes
Jeremy Lehman, Agent, Garden Grove, CA
Thu Mar 1, 2012
Terms matter, but in general, Yes. Getting the lower rate will save you tons of money over the life of your loan.
0 votes
Steven Ornel…, Agent, Fremont, CA
Thu Mar 1, 2012

You really have not provided enough information to provide a definitive answer; however, we can set up an example to demonstrate how to figure out the answer in your case.

A current $100K 30Y loan balance at 4.75% with a $396 monthly payment and a refinance rate of 3.875% you would have a $83 savings each month ( you can use this amount to figure out other loan balance, for example, the monthly savings for a 400K loan under the same circumstances would be ~$83x4).

Now your main question is "is it worth it to refinance". One way to answer this is to figure out your breakeven point.

Here's how you would do this on the example above:

1) Determine your current payment ($396),
2) Calculate the monthly savings after the refinance ($83)
3) Determine all of the costs attributed to refinancing (let's guesstimate $1500)
4) Now, take the total cost of refinancing and divide by your savings (1500/83 =18)

In this example your breakeven point is 18 months. For every month you stay past the breakeven point you are saving money. Leave before the breakeven point, and you have lost money by paying down your rate.

Obviously, the shorter the timeline to recoup the expense of the refi, the greater the incentive to do so.

You can use this same method to determine if paying points to lower your rate makes sense as well, just add this additional cost to the calculation to get a "No points"/"With Points" comparison.

0 votes
James Gordon…, Agent, Hamilton, OH
Thu Mar 1, 2012
Nicoled13 it also depends on the charges from the lender. I have a local savings and loan I recommend to my past clients. If there is a 20% equity possition in the home closing costs on a refi run about 450.00 (250.00 plus recording costs).
0 votes
Lance King, Agent, San Francisco, CA
Thu Mar 1, 2012
It really depends on how long you plan to stay in the property, what rate you can qualify for, and what the costs are for doing it. Balance the numbers out and the answer should be obvious.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
0 votes
Jeero Habesh…, Agent, La Crescenta, CA
Thu Mar 1, 2012
Hello Nicole:

Answer a few questions and you will determine if it makes sense for you.

1. What is the balance of the loan? The larger the balance, the greater the savings.
2. Can you afford to lower the term of the loan? For example, you can reduce from a 30 year to a 20 year term loan.
3. Will your current lender perform a "Streamline" refinance of your loan? Since they they service your loan, they may be in a position to change your loan at a reduced cost and with less documentation.

Please let me know if I can further assist. Jeero 818.523.9995
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0 votes
Tim Moore, Agent, Kitty Hawk, NC
Thu Mar 1, 2012
You have to work the numbers to see how much savings vs how much to refi. My guess is it won't be worth it.
0 votes
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