So if I can refinance my house at 2.3% for 15 years, should I do it? Basically, I'm paying off my old mortgage (4.5%) 100k on 250k house. But the fees (110k on a 100k loan) has me thinking twice about pulling the plug. Any input is much appreciated!
For $100K? Okay, here is how you check. A few different comparisons:
(Say you have closing costs of $2000 with appraisal. Maybe less, with some online lenders and bigger banks. Maybe more with others)
1) First, calculate the payment for $102,000 @ 2.3% for 15 yrs:
$671/mo
2) Now, $100,000 @ 4.5% for 15 yrs:
$765/mo
(765-671= $94/mo) * 180 mos =
$16,920 saved, refinancing
So, you would save $16,920 over 15 years if you only ever plan to make the minimum payment required to pay off the home in 15 years. I.E., pay off mortgage you have for 180 months, versus refinancing it.
However, if you plan to pay more than the minimum:
Let's say you are comfortable paying $1000 per month. So, now , we hold the payment constant:
1) Keep current mortgage: $100,000 @ 4.50%, $1000 pd/mo: 125.5 payments,
$125,500 paid in total.
2) Refinance: $102,000 @ 2.3%, $1000 pd/mo: 113.6 payments,
$113,600 paid in total.
$11,900 saved over 9-10 years. Paying off about 1 year faster. About the same amount saved per year in the first scenario, really.
BUT you also do gain equity much faster, naturally, when you overpay. In scenario 2, where you overpay, Only about one year faster, though.
So the difference between refinancing and not refinancing is slight, if you plan overpay the mortgage by any substantial amount.
