Does it make sense to refinance given these numbers (mortgage, refinancing)

[ajcorpus]

I have a 30 year fixed mortgage with a 3.875% interest rate currently paying $1128/month. I have made about 63 payments (5 years + 3 months) on the 360 months term (30yrs). My initial mortgage was for 240 k and I have a balance of 215 k left. My house was bought for 305 k and has not appreciated nor depreciated based on most recent home values around. I am getting a refinance offer rate of 3.125% and with closing costs rolled in, I would be refinancing about 223 k bringing the monthly payment to about $958 per month. My goal is to reduce monthly payments with the savings (about $170/mo) going into a high yield savings account or the stock market (snp index funds). Alternatively, I could add the 170 as additional payments into the new mortgage and still finish paying in about 23 years + 3 months. Based on the growth on savings, refinancing does sound like a good idea, but is there something I am not thinking about that makes this not worth it? Please do give me your opinions on this. Thanks !

[Teacher Terry]

I just refinanced from 3.75 to 2.84. The closing costs will take 3 years to break even. I think it's worth it.

[ajcorpus]

Originally Posted by Teacher Terry

I just refinanced from 3.75 to 2.84. The closing costs will take 3 years to break even. I think it's worth it.

That’s a great rate. Was this a 15 year mortgage? And did you have any points to pay for the mortgage ?

[Teacher Terry]

It was a 30 year from Aimloans.

[ajcorpus]

How much percentage point on that ?

[jtothemak]

If you refinance for another 30 years you are now making your original 30 year mortgage a 35 year and 3 month mortgage with a lot of years of interest. If you truly plan to live in the housefor a long time refinancing can be beneficial. Now is a really good time to go down to a 15 year mortgage however it is going to make your payments higher but it in the long run going to make a big difference. I would suggest to only consider another 30 year if paying your current mortgage is really a stretch of payments and how much is really a hundred and something a month going to help with your finances? Keep in mind below 4% on your current mortgage is still a really good rate.

[ajcorpus]

But would it not make sense then to refinance and put the 170 savings back in as extra payments towards the mortgage and finish in 23 years as opposed to continue paying my current mortgage and finish in 25 years ? Am I missing something or am I thinking about it incorrectly here ?

[sonic0boom]

Originally Posted by ajcorpus

But would it not make sense then to refinance and put the 170 savings back in as extra payments towards the mortgage and finish in 23 years as opposed to continue paying my current mortgage and finish in 25 years ? Am I missing something or am I thinking about it incorrectly here ?

Assuming there is no early payoff penalty, you could do that. But rates are usually lower on a 15 yr vs 30 yr, so that might be your best bet if you can swing a little more on your monthly payment.

I was inspired by this post to check with my original lender on current refi rates I'm already at 3.5% which is good but i might jump on a sub-3% rate if available. I'm like you, 23 yrs left on a 30 yr mortgage.

[sonic0boom]

@ajcorpus: I just spoke to my old lender and here is his take. I currently have 3.5% and he can get me 3% if i refi with a 15yr mortgage, which would be about + $268/month. As i mentioned before, i'm currently 7 years into a 30 Yr mortgage. While a half percent saving is good, he didn't feel that it would be worth the effort. Instead he felt i would be better served just increasing my monthly payment by that same $268 to pay down the principle faster. Hope that helps.

[Arepa]

Originally Posted by ajcorpus

But would it not make sense then to refinance and put the 170 savings back in as extra payments towards the mortgage and finish in 23 years as opposed to continue paying my current mortgage and finish in 25 years ? Am I missing something or am I thinking about it incorrectly here ?

I think you are correct. It would make sense to do it, however ONLY if you are staying in your house for a few years. You can calculate the breakeven (when the cost of the refinance will be covered by the savings) and decide.