Should I refinance?

[jfoxcpacfp]

Sorry, I let this one drop. Obviously, the appropriateness of the decision is based upon whether you are actually going to pay the loan off according to the early schedule and don't sell before recovering your refi costs. At the same time, other unknown factors could impact your results, such as getting a better-than-expected offer before you recover your refi costs or the need to sell at a lower price due to unforeseen events. This is an example of how financial planning can benefit you.

[RJ]

Well, reassurance is always nice . The big unknown I guess if if we decide to move sooner, but that is unpredictable.

[jfoxcpacfp]

It looks like you don't need me  

[RJ]

A online calculator shows this:

 

Results

A 'traditional' breakeven analysis calculates all costs associated with a refinancing and divides by the monthly payment savings achieved by refinancing. Although the 'traditional' method does a good job evaluating when you might make your money back it ignores one key factor-your new mortgage will probably now have a longer term than your existing one.

To overcome this discrepancy, we recommend that you increase your monthly payment on your refinanced loan slightly until the refinanced loan pays off at the same time as the existing mortgage - 'enhanced' refinance. Your monthly payment will be slightly higher than the 'traditional' refinance, but your mortgage will pay off faster and you will reduce your overall interest paid. Below is an analysis of your situation.

If you plan on staying in your home for longer than 15 months it may be time to refinance. After 15 months you would breakeven (recover the closing cost) and save money over your current mortgage situation. Your monthly payment would drop from $4,549 to $4,139, putting $410 each month into your own pocket and you could save $15,744 in interest over the life of the loan.

Summary Table

	Current	Traditional Refinance	Enhanced Refinance
Term	331	360	331
Payment	$4,549	$4,139	$4,354
Breakeven	N/A	15 months	31 months
Total Interest	$554,716	$538,972	$490,322

[jfoxcpacfp]

RJ wrote:

I owe approximately $950k. I am planning to pay this off in about 15 years. Don’t you think paying significantly less interest over a decade and a half is advantages?

Click to expand...

Well, you didn't say that! Possibly, but I would have to run the numbers and I am running out the door instead :-) Will look at later if somebody else doesn't step in.

[RJ]

I owe approximately $950k. I am planning to pay this off in about 15 years. Don't you think paying significantly less interest over a decade and a half is advantages?

[jfoxcpacfp]

Don't know how much you owe but, because you would be extending your loan term, my guess is you would come out in the hole. It would be ok, imo, if you weren't extending the term because you would recoup your closing costs in just under a year.

[RJ]

Hi Johanna, I am have 27.5 years left on my current loan and it would go into 30 on a new loan. APR would decrease from 3.625 to 3.25.

[jfoxcpacfp]

So you would increase the term of your loan? From xx years to xx years?

[RJ]

I currently lave a jumbo loan in CA locked at 3.625%. I have been looking at rates and haven't seen anything better for a while. A few days ago, I saw One West advertizing 3.25% at zero points. This would reduce my payments by $480/month. Well, I wouldn't be paying less, as I still make extra payments, just less interest. This also involves ~$5700 of closing costs which would be rolled into the loan. Should I go for it? My plan is to be in the current residence for at least a few more years. TIA!