Refinancing: Worth It?

[Tenspro2002]

Personal finance experts of the BY: is it worthwhile to refinance a mortgage that I just took out last year?

I'm paying 4% interest on a 30-year mortgage right now, but could potentially refi down to 3% (also 30 years) and reduce the monthly payment by $200.

Depending on how long I take to pay it off, I could save somewhere in the ballpark of 25K in interest over about 20 years. Mortgage interest tax deduction isn't likely to be a factor. Closing costs would be 5K.

FWIW, turning 5K into 25K over 20 years is equivalent to a 9% annual return, which seems pretty good.

Should I go for it? Anything seem out of line?

TIA.

 

[UConn Esq]

I bought a house in December 2019 at 3.6% over 30 years and am closing today on a streamline refinance, which sends me back to 30 years but at 2.8%. Saves me about $400 a month going forward

 

[auror]

Downside to a 15 year is the opportunity cost of investing the difference you're paying into mortgage instead of investing (at almost certainly a better return than the interest payment). Plus 30 years allow you to pay it in 15 if desired, whereas you can't pay a 15 in 30 if you come on harder times.

 

[huskiesNhoos]

Well, we already went ahead with it. We're doing the 30 year (we had 28 years left on our current 30-year anyway), but with the intent to pay extra principal along the way and pay it off in 20. Getting the 20-year wouldn't have come with a better interest rate, and the tradeoff with the 15 is a lot less flexibility for a slightly better rate, not worth it.

Appreciate the advice anyway.

I think this gets overlooked by many. Sure you can get a slightly lower rate or pay a bit less points with a shorter term loan, but it can be risky based on the current state of the economy, job markets etc. Forces you into a higher monthly payment whereas if you just stick with a 30yr you can always make extra principle payments and effectively reduce your loan term and total interest paid. Allows for more financial flexibility since you can decide what to do with the extra money you save on your monthly payment: invest it, donate it to charity, buy more booze...

Obviously situations are different for everyone, but just some food for thought.

 

[casual-yardin]

I think this gets overlooked by many. Sure you can get a slightly lower rate or pay a bit less points with a shorter term loan, but it can be risky based on the current state of the economy, job markets etc. Forces you into a higher monthly payment whereas if you just stick with a 30yr you can always make extra principle payments and effectively reduce your loan term and total interest paid. Allows for more financial flexibility since you can decide what to do with the extra money you save on your monthly payment: invest it, donate it to charity, buy more booze...

Obviously situations are different for everyone, but just some food for thought.

This. Get you 30 year payment as low as possible and send the savings to 401k's, 529's etc. Borrowing at sub 4% for 30 years is as close to free money as you are going to get.

 

[3rdbass]

This. Get you 30 year payment as low as possible and send the savings to 401k's, 529's etc. Borrowing at sub 4% for 30 years is as close to free money as you are going to get.

Sub 4% lets try sub 3%.

 

[Tenspro2002]

I think this gets overlooked by many. Sure you can get a slightly lower rate or pay a bit less points with a shorter term loan, but it can be risky based on the current state of the economy, job markets etc. Forces you into a higher monthly payment whereas if you just stick with a 30yr you can always make extra principle payments and effectively reduce your loan term and total interest paid. Allows for more financial flexibility since you can decide what to do with the extra money you save on your monthly payment: invest it, donate it to charity, buy more booze...

Obviously situations are different for everyone, but just some food for thought.

Bingo.

And yes, we're looking at 2.875%, down from 4%.

With rates this low, we don't fear interest -- the extra flexibility is super cheap.