Refi advice?

Yes. Watch out for ballooning charges if you miss a payment. Plan in case you are incapacitated or unable to work.

Maybe think about how long it would take you to recoup your closing costs compared to the years you would save. If it would take you 2 years to recoup, then you aren’t really saving anything.
Before you refi, get a mortgage calculator (google one) and play around with just making bigger payments to cut back on years you will have to pay. Because you are probably going to make bigger payments by going with less years anyway.
I refied to 30 years after losing my job and getting a lesser paying one, but made bigger payments and knocked off several years.

@chyna offers very good advice. We also refinanced to a 30 year when rates dropped. We are paying close to double payments now because we can. If my husband were to lose his job, we could make the mortgage payment on my salary.

If possible – and it may not be – try to use a mortgage lender that doesn’t immediately sell your mortgage in a bundle to investors. Try to hook up with a lender that keeps the loan in house.

Why? Remember the mortgage crisis about 6 years ago where loans had been sold right and left, and there was never any idea who held the actual loan and where the paperwork was? That was a direct result of loan bundling and selling.

Now, your lender may sell everything – they have to disclose that to you at closing (and hopefully before), but not all banks do that. (Mine, for example, kept my mortgage in house).

Try it, for safety.

Do the math. You have to include all the fees you will have to pay to refinance. If you wind up financially better assuming you might sell in 5 years then definitely I think refinance and go 15 year mortgage.

Ask for a good faith estimate (that is a federal law) to disclose the fees. Remember that some fees are prorated in the month, so if the good faith gives a closing date if the 15th, which is very common, you might get a shock if you close on a very different date much earlier or later in the month. Something like a refi should be no problem to estimate a date within a couple of days.

Remember when you do the math to also look at the total amount you will pay over 15 vs 30 year loan, and also how the equity builds for each in the first 5 years. Remember, most of the interest is paid in the first years of the loan. Which leads me to if you only have 15 years left on your current loan you might be paying very little interest now, and building equity fast, so use one of those online calculators that shows you what part of your payment is still going to interest.

This link is a calculator that you can also click on the monthly amortization and see how the interest is paid each month. Look up the loan you have now and the new one.

Skip the refi and just make higher monthly payments and make sure you are on the same page with the mortgage company about applying the ‘extra’ amounts directly to the prinicpal amount of the loan. My mortgage is with Chase and you would think with their size they would have their shit together, but it took us 3 payments with higher amounts to finally get them to process the extra directly towards pay down of the principal. I actually said if I send a banana with my check would this go any smoother?

We are missing major information. We don’t know the interest percent the OP is paying now. We don’t know if he needs a lower monthly payment amount for his finances to make ends meet. We don’t know how long he has owned this current loan.

You need all of the numbers to make a decision. No one can say do it or don’t do it just based on some philosophy they have or what they’ve heard is best.

Generally, if the interest difference is 2% or more it’s worth it, but not always.

A 15 year loan should get you a better interest rate than a 30, this is something simply doing early payments cannot achieve, and if already interest rates have come down over 1% for a 30 year mortgage since the time of purchase it might be worth it. Also, early payments does not affect at all what you owe each month usually. It will shorten your loan, but not change your monthly obligation.

Or, if the OP’s credit has improved the interest rate might be much better. My FIL went from 7 point something % to 4.5%, a year and a half ago. It was definitely worth it. He’ll only save about $30k over the life of the loan, but the monthly payment came way down for him, which was very important at the time. I’m pissed he didn’t refi sooner.

Thanks all. @JLeslie, I didn’t know about good faith estimates, so that info is particularly helpful. I’m 13 years in on a 30, and my financial picture is stable either way.

My interest rate will drop a little more than a 2.5% if I opt for a 15. The way things look at first blush, I can lower my payment by $70 (9%) a month and shorten my original 30 year schedule by two years. I probably won’t sell, because the property is a great rental.

So am I correct in thinking that other factors noted above don’t matter so much? For example, whether I’d be paying more interest than principle again because I’d be starting a new mortgage? Since I’d likely be paying less per month and fewer years, should I care how soon I’m recouping the refi cost?

@Cruiser, I would have agreed with you in spirit some time ago, but I’ve also seen advice to invest extra money instead of paying down a mortgage, since the savings on tax deductible interest is generally outweighed by market gains in a 401(k) or other investment. If I am correct, I’m looking at a 3.2 APR, so I think hanging on to OPM makes sense in this case.

I guess one other question is whether I should for some reason consider another 30, which would drop my payment by around $165 (20%). I guess that would give me a lot more flexibility, and I could still pay it off early. Any takers on this idea?

Thanks for your responses everyone.

@kevbo If you are in this for the long haul with that property jump on a fixed loan either 15 or 30. The 30 yr will give you extra ‘cash’ that you can put towards improvements and like you said still do some extra payments if you elect to do so. I’ve bought 2 pieces of property that have interests rates in the 3% range and this is just nuts to think that is still even possible. Lock in that rate now as 5–10 years from now we could see Carter era rates in the double digits.

@kevbo My gut feeling is you’re better off refinancing, but again, you need to run the actual numbers. If the total dollars you will spend over the life of the new loan is less than what you have remaining on the old loan, I think do it. Your new loan will have interest up front again, and might give you a better tax break. It might depend on whether you are able to itemize.

Did you check out the monthly amortization table? Even without that you can do the simple math and take your monthly payment times the amount of months for both your old and new loan and see the total dollars you are going to pay on each. That will give you dollars that will actually be leaving your pocket, even if we ignore how much interest and principal it is.

So, to be more clear if your monthly payment is $650 and you have 17 years left, 17X12=204 months. 650×204=$132,600. If your new loan is $590x$180=$106,200. Pretty big difference. You have to add some dollars for the refi expenses.

Remember to make the calculation apples to apples. Don’t include any escrows like insurance or property taxes.

If you pay extra each month on the current loan the savings might be similar, I’m
not sure exactly what it will be, but you will have to pay more per month right now, if that matters to you, refi you pay less per month now.

That’s my opinion. I’m not any sort of financial advisor. Also, remember the people trying to give you the new loan are salespeople, they want their commission, so be a little wary of that.