Real Estate Home Mortgages/Refinance

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Question
Hi Erick,  my husband would like to refinance our home for the secon time... We purchased our home 7 yrs ago for $407,000 at a fixed interest rate of 5.125% for 30 years. We then refinanced the house to a fixed interest rate of 3.75% for 30 years to lower our monthly payments. Now my husband wants to refinance again to an interest rate of  2.625% for 15 years.. Is it really worth refinancing again? Is our mortgage payment going to be higher? what about all that money that we already paid towards the mortgage all these years? I don't really understand this process of refinancing and would like some advice before my husband makes any changes. Thank you!

Answer
Elsa,

The refinance to a 15-year loan would possibly make sense ONLY if it is a no-cost, no-fees refinance. Assuming that the loan balance is around $400,000, a 15 year loan at 2.625% will have monthly payments of $2,690.76, which is probably $800/month more than what you are paying right now. For most people, that's a heavy burden.

Now, you could accomplish something similar by keeping your existing loan and volunteering extra $800 each month in addition to the regular payment, and if you do that, you'd cut the term of your loan by 155 months (13 years). This is not quite the same savings you get by refinancing, but it has one big advantage: flexibility. If you go through a financially-rough period, you stop making the voluntary addition to your monthly payment.

To summarize: if money is no object, the refinance could be a good option; otherwise, stay with the existing loan and volunteer extra payments.

All the best,

Eric
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

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Eric Forster

Expertise

Did your last mortgage broker or lender trick you into a messy situation which could cost you your home? I've been close to 30 years in the mortgage industry, and I've seen it all. Believe me, it is not pretty. As the owner of a mortgage company I am called frequently to testify as an expert witness in mortgage fraud cases and other cases where lenders did not fully disclose the terms of the loans they were offering to the borrowers. I have seen fraud being committed by borrowers - and by lenders. It's a tough world out there. And by the way - you are invited to visit my website, www.real-estate-expert-witness.net.

Experience

More than 25 years in loan production and underwriting in Southern California.

Organizations
Mortgage Bankers of America (Southern California Chapter)

Publications
Former columnist for AOL Financial Center and the author of a mortgage primer.

Education/Credentials
MBA (Finance)

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