We live in a $500K home with a $200K mortgage at 3.75% interest rate. It appears we have a chance to refi down to 2.99%. Does that provide a substantial savings? Or is our mortgage low enough that it wouldn’t make an appreciable difference?
Posted Dec 10, 2019, 3:49 PM UTC
What’s the closing cost? You have to look at that offsetting any savings when taking into account how long you plan to be there. I have seen some of these refi cost $4000 in closing which starts to kill the deal if there a shorter time
Great point. Is there a way to calculate that before talking to the bank?
You will have to find out from bank what the total closing cost is. You can get that from them without actually applying for the refi. It can vary wildly
Thanks, will ask.
No. Closing costs are going to be lender and regionally variable.
So, if you're going to save $115/m in interest by refinancing, you'll need to make $4,000/$115 = 34.78 months worth of payments for the savings to break even with the refinancing costs. If you're looking to pay your house off within 2 years, that's not worthwhile.
If you're on the higher end, with closing costs running $10,000, it'll be 86.96 months of payments, or 7.25 years for it to break even.
Well, we are thinking of selling the house in two years, not paying it off. But your point remains.
When you calculate the break even point, and plan on living there for at least as long as it takes to break even.
you refi if you plan on staying in the house longer than it takes to reach a break-even on the refi expenses. some quick crude math below, a good mortgage broker can walk you through your specific scenario:
suppose the refi costs are $3000 for paperwork.
you're currently paying about $7,500/year in interest. a refi would drop that to $5,980, saving you $1520/year. you'll break even after 2 years.
if you plan on staying in the property and/or holding the mortgage more than 2 years, seriously consider a refi. if not, you might just want to ride out the existing mortgage and avoid dropping $3k on the refi.
Excellent. appreciate it and your numbers are damned close on interest to what NerdWallet said.
It depends how long you will have the loan.
So...when will you will pay off the loan or sell the house?
We’ve had the loan since 2017 and have a 2 year plan and a 10 year plan depending on our job situations. A nerd wallet calculator shows we’d save $115 a month which is pretty great but I don’t know how precise that is.