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About Craig Ballhagen
Expertise
All questions regarding home purchasing and refinancing

Experience
licensed in Ca and Idaho with over 15 years of experience

Organizations
Boise Young Professionals, Association of mortgage bankers

Education/Credentials
BA Sacramento State

You are here: Experts > Shopping > Home Buying/Selling > Real Estate Home Mortgages > Refinance

Real Estate Home Mortgages - Refinance

Expert: Craig Ballhagen - 9/28/2009

Question
Hi,

1st of all thank you for taking the time to answer my question.

We live in Florida and currently have a mortgage of $78,500. Our interest rate currently is 5.375 and our monthly payment is $680. Original term 20yrs but we're down to close to 15 now.

I called my bank today and found out that the interest rate for a refinance 15yr fixed is 4.375 and that will bring our payments to $615 when we add closing costs in which are about $2,200.

My question is:

Should we refinance? Is it worth it or should we continue with our current mortgage?

I should add that we pay about $400 extra a month to our principal and hopefully keeping up with that we can pay off the current mortgage in 7.3 years.

I plugged in the new #s and am now confused because with the new payment and even adding the $465 (after refi) extra a month it says we will pay off in 7.2 yrs which is not much of a difference and thats where i'm confused. If our payment and our interst is less and we're still making the same payments we are now why isnt there there a bigger difference?

We pay our escrows separately so that wont be added to mortgage/refinance.

So its:

mort amt $78,500
interest rate 5.375
payment $680 + $400 extra to principal

refi amt $81,000
interest rate 4.375
payment $615 + $465 extra to principal

please tell me which is more beneficial to us.

Thank you.

Answer
I would suggest not to refinance. With only a 1% drop in rate with a loan amount of 78k and the cost of $2200, you would be better served by continuing to prepay the mortgage. I would get a new amortization schedule for 15 year schedule. The reason why the payments are different, is because you are comparing a 20 year to 15 year amortization.
Another suggestion is to take the amount that you are currently prepaying and put it in another interest bearing account. That way you can build up a savings account and after a few years apply the money to your mortgage as a lump sum. Once money is prepaid to a mortgage, you can not get that money back. With a separate account, you have the CHOICE and you have created a nest egg.

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About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here