Refinance question

[dukebound85]

When is a good time to refinance? If I am in position to recoup closing costs within 8 months due to a lower interest rate, would it be smart to go ahead? I originally closed on my house 6 months ago and rates are .5-.75% lower.

The way I see it is that in 8 months, my closing costs will be made and then I am saving the extra mostly amount for the remainder of the loan life. That the correct way to think of it?

Thanks!

 

[ucfgrad93]

If you can recoup your costs in less than a year, I'd say it is a good deal.

 

[SurferMan]

Depending on what loan you have right now, check if there are prepayment penalties, some can be quite hefty.

 

[sdilley14]

If you can reduce your rate by .75% or more, typically it's a good idea to do it. It also depends on how long you plan to stay there. If you're planning on being there for another couple years at least, I would say definitely do it. If you might sell in the next 6 months for whatever reason, then the cost/benefit probably doesn't balance out.

If you only plan on being in the house for, say, 3-5 years, you might want to look at a 3 year or 5 year ARM. Rates on those products are typically lower than the 30 year products. But of course the risk there is that the rate can adjust after that period of time.

It also depends on what type of loan you have. If you have an FHA loan I would definitely say "do it" as FHA mortgage insurance premiums have dropped as of the end of January. So you would be saving money on both interest rate and mortgage insurance.

You can check, but I wouldn't worry too much about a pre-payment pentaly. Most mortgages with PPP have been done away with after the housing market bust in 2008.

 

[aaronvan]

A lot of real estate pundits will say don't refi until you can lower your mortgage by 2-3%. However, it all depends on your personal financial situation. We lowered our by 3% and it was a huge savings, almost a grand a month. Remember to factor in all the closing costs, etc. Good luck and let us know what you decide.