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My current rate is 5.75% and I have a 30 year note. I would love to take advantage of the all time lowest rates, but how much will it save me? Will I have a difference in my monthly payment? Will I pay it off quicker? Also, I do not have the money to pay for closing costs upfront if I do refinance. Is wrapping it into the loan an option–or would that be counterproductive?

6 Thoughts on Should I refinance my mortgage loan if rates have dropped more than 2%?
  1. Reply
    April 9, 2012 at 1:27 pm

    All depends on what your house is appraised at and how much you owe whether you can include closing costs. Ask your current lender since apparently you just bought the house and may not need full closing costs. Some do it for a small fee

  2. Reply
    April 9, 2012 at 2:02 pm

    I like these calculators and articles:

    If you refinance with a different bank your closing costs are going to be close to previous ones. Try to get into a 15yr loan if you can.

    I saved $ 630 by refinancing from 5.625% to 4.375% on a $ 500K loan 2.5 yrs ago.

  3. Reply
    Glenn S
    April 9, 2012 at 2:43 pm

    Just refi a rental home from a 30 year loan down to a 10 year loan through Quicken Loans. Dropped the rate from 5.75% to 3.75% and the payment went down slightly. In an owner occupied home the same loan would go down to 3.25% and the payment would go down substantially.

    Most people just add their loan costs into the principle loan amount without any money out of their pocket. Also you can get a no closing cost loan and the principle stays the same, but your interest rate will be about .5% higher.

  4. Reply
    April 9, 2012 at 2:45 pm

    The rule of thumb is ,if you can recover what it cost you to refinance the loan in 6 mo.’s or less, you should consider it.

  5. Reply
    April 9, 2012 at 3:01 pm

    The larger your mortgage, the more cost effective refinancing will be. Most of the fees involved are fixed, so they will be only slightly higher for a $ 200K mortgage compared to a $ 50K and you will recover your costs much more quickly with the larger amount. If you refinance to another 30 year fixed at 4.0% your monthly payments will be $ 1.07 lower for every $ 1000 you are borrowing. Assuming $ 2500 in fees, you recover your costs in less than one year with $ 200K while it will take just short of four years to break even with $ 50K. Nobody spends $ 2500 to break even, so you want to be reasonably sure you will be in your home or your mortgage at least long enough to break even and then some. The lender may also offer to pay all or part of your fees in exchange for a slightly higher rate.
    You can choose to finance over a shorter term for an even lower rate. Even if your payments increase there are clearly benefits to being mortgage free 10-15 years sooner if you can handle the payment.
    You can include the costs in your loan as long as you have enough equity to allow it. If the new payment makes sense for your situation there is nothing counterproductive about it.

  6. Reply
    April 9, 2012 at 3:38 pm

    YOu can roll the cost of the refinance into the loan, this is typically thousands of dollars. You will have to calculate the cost, the amount you save every month, and the period of time it would take to make this work.

    For example, say your refinance is going to cost $ 3.000. You are going to save $ 100 a month doing this refi. It would take you 30 months to make up the amount you paid for the refi.

    Now this is a primitive example, but it gives you an idea of what you are looking at.

    Many people that are easily affording their payment are refinancing into a short term. In your case, you may be able to go from a 30 year loan to a 20 year with a very similar payment. But considering you have no savings, you might want to go for a lower payment and put some money away.

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