Assess our mortgages

[HappySaver]

We are three years into a 20-year mortgage at 3.625%. I've been thinking about refinancing before rates go up, but not sure if it makes sense for us?

A 10-year loan can be had for 2.875% but the payments are much higher than we're comfortable with.

We could swing the payments on a 15-year loan at 3.125% but after factoring in closing costs not sure that it's really worth it? Do you think we could get a better rate on a 15-year loan, maybe even with closing costs thrown in?

[Fishindude77]

Stay where you are and increase payments when you can to pay it off sooner.

[bjl584]

We are three years into a 20-year mortgage at 3.625%. I've been thinking about refinancing before rates go up, but not sure if it makes sense for us?

A 10-year loan can be had for 2.875% but the payments are much higher than we're comfortable with.

We could swing the payments on a 15-year loan at 3.125% but after factoring in closing costs not sure that it's really worth it? Do you think we could get a better rate on a 15-year loan, maybe even with closing costs thrown in?

It sounds like you will need to run the numbers to see if switching to a 15 year would be worth it.

Something to consider: You only have 17 years left on your mortgage anyway. Would paying all the closing costs and fees really be worth shaving 2 years off the term? Especially when you can just pay extra on your current mortgage without incurring any additional fees?

[disneysteve]

We are three years into a 20-year mortgage at 3.625%.

We could swing the payments on a 15-year loan at 3.125%

Would paying all the closing costs and fees really be worth shaving 2 years off the term?

I agree. If you can afford the higher payment of the 15-year loan, just start paying extra principal on your current loan. You'll shorten the repayment period and reduce the total interest paid and avoid the hassle and expense of refinancing.

[HappySaver]

Thanks all.

[avil_saver36]

Math is your friend.

How much money have you left on your mortgage? I will assume $200K. Adjust the number accordingly depending upon how much you have left over.

The "average" amount on which you will pay interest hereafter is $100K. This total duration you will pay interest on is 17+ years. For simplicity, I will assume 17.5 years.

You will save 0.5% in interest on this money. This translates to $100K * 0.005 * 17.5 = $8250. I do not believe the closing costs are higher than this. When I refinanced, I paid only $2300 out of my pocket considering everything. There was more upfront payment to set up escrows, but I got an escrow refund from the previous lender, so it cancelled out.

In essence, you are mostly better off refinancing if it lowers your rate. Your net benefit is $8250-$2300 (what I paid), which is about $6K. Over 15 years, $6K is indeed not that much money, so it is up to you if you want to take the "hassle" of refinancing. I am also assuming there are no tax situations here, and the interest is already low enough to not have any impact on the interest deduction.

[HappySaver]

Got some hard numbers from a local bank after doing some online rate shopping:
Can get 3.25% with reduced closing costs. Overall payment would increase by $120, which is manageable.

We would be saving $120/monthly in interest, break-even in 6 months.

Financially, this seems worth it. Is it worth the hassle of refinancing? Keep going back and forth.

In response to other comments, additional extra payments are not an option for us in the short term - at least not for 8 months to a year and possibly longer.

[HappySaver]

Decided not to re-finance. The closing costs were not quite as reduced as they were supposed to be, and it really ends up not being worth the hassle. Smart bunch, this group.

Once we're able to, we'll make extra payments instead.