Refinancing, would you under these conditions?

[verarae]

So I don't post here much but I know there are lots of you out there you know lots more than me about mortgages, refi's, etc...:) We bought our house in 2005 for $116,000.  Unfortunately, we were in an ARM so we refinanced in 2008 for a rate of 5.75%.  Now that rates are down again, we got a quote for 3.8% with $3,100 in closing costs (this is through our current lender).  It would save us $156/month and take us about 19 months to recoup the closing costs but I don't want to get in the cycle of refinancing every couple of years.  And we'd be starting from square one again, our $113,000 current balance would be $117,000 with the closing costs.  What would you do in this situation? 

[SunRise]

If you plan to stay in the house for 5 years or more, I think its worth it,. You may also get the loan for 20-25 yrs so you are not completely starting over.

I recently called to refinance my house but with the closing costs (3600) and if I bundled the closing costs into the amount I owe, it would make my loan higher then the original amount (but still a lower monthly payment). I wanted to pay the closing costs with cash, so my thought was pay for refinancing or put the 3600 directly onto loan.... Also, I dont plan to be in this house for longer then 1-2 yrs so I didnt go for it.

[Sunshyn74]

I think I would do it, but i would put the $156 I was saving back on the mortgage (or on other debt if it was higher interest). Did you see what the payment would be if you did a fixed rate 15 year mortgage? It might be very close to what you are paying now, and save you a lot of money in the long run.

[SweetSilver]

But a 30-year gives you the option of paying the minimum if you need to, or put more toward the principal when you can.

I'd say go for it, and pay the extra toward the principal if you want to feel like you are not just starting over.  That's what we are hoping to do with the $71,000 left in our loan.  We are paying 6.25% currently.

[crunchy_mommy]

How long do you plan to live there?

I would do it, as long as you anticipate staying there long enough to make it worth it (I think the 5-year guideline is a good one).

I don't think you'll end up refinancing every few years, you'd finally have a good rate! That's 2 percentage points lower than you're paying now, which will save you a ton.

At 5.75% -- 113K for 30 years, you'd end up paying $124K in interest.
At 3.8% -- 117K for 30 years, you'd pay just $79K in interest.

So you'd be saving a total $45K in interest over 30 years. And if you put that extra $156 each month as extra payment on the principal, you'd save an extra $30K in interest and pay your mortgage off 11 years early.

I'd make sure there is no prepayment penalty, and of course read the fine print. But yeah, unless you plan on moving in a year or two, it definitely seems worth it (in fact, I'm a bit jealous!)

[Quinalla]

I would do it too if you are planning to be there for ~5 years or more. Also, if you can swing it, I would pay for some of the closing costs in cash and definitely commit to paying the extra you will save onto the mortgage (or to higher interest debt if you have any) so that it really makes it worth your while. I doubt you will refinance again, what are the odds you are actually going to be offered a lower rate than that anytime soon?

[verarae]

Thanks for all the answers.  We think we are going to go ahead with the refi but I double checked the rate and it is actually 3.875%, a little higher than I thought but I think still worth it.  Thanks again for all your help!