Refinance mortgage -- good or bad?

[BaileyCatts]

I keep getting told that I should refinance my mortgage. While I know that works for some people, in my case, I think it just don't make any sense. I currently am down to owing $40K on my mortgage, which currently is due to be paid off in May 2018, at 4.5%. Now, why in the world would I refinance to a 10 year mortgage at a lower rate (which around here seems to be around 3.9%) and extend the length to 10 years, when I will have it paid off in 5 years leaving everything as is? And would I not have to shell out a few thousand bucks upfront for fees and processing, etc.? To me it just does not make sense to refinance in my situation. Am I right?

[Bostonfan]

I agree with you. Given the numbers you laid out, it really doesn't make much sense to refinance.

[sk8er1964]

The only way it would work is if you refi at the lower rate and pay extra (which could be your old payment amount depending on how the numbers work), which might enable you to pay off even earlier than five years. If that isn't the case, I wouldn't bother - especially if you have to pay closing costs.

[Really]

I wouldn't bother either.

[Louis]

Do you have any better use for the cash? Depending on your overall situation, it may not be a bad idea to extend the length of your mortgage (perhaps even to a 20 or 30 year loan) and pay the difference into some kind of a tax-advantaged accumulation vehicle. With interest rates where they are, I would not be in any rush to pay down principal.

[Rogue]

What Louis said. If you do decide to refinance, make sure the difference in payment is automatically put into an investment account which you will not touch currently. At the end of 5 years, you can decide whether to use this investment account to pay off the mortgage or to continue with the investment program.

Also, you can roll the refinancing costs into the new mortgage, so you won't necessarily need to shell out $$$$ up-front.

The only way to know what is the right decision for you is to look at your options for investing the payment differential and then running projections to see which will give you the best result.

[vesperholly]

Why a 10 year loan? If you refinanced for 30 years fixed, your payments would be very small. But it sounds like you prefer to pay off the mortgage.

I recently refi'd. Best decision I ever made. I went from 6% to 3.75%, though, and I was only 7 years into a 30-year mortgage. Things look different on this side.

[Aceon6]

We're in a similar position as BC. The bank keeps sending us offers to refi, but we're in year 26 of a 30 year, so our payments go 80% towards the balance. I ran the numbers and it didn't make much sense to refi, especially as the minimum term is 7 years. I want to get rid of this sucker in 2015.

[Skittl1321]

We refinanced when we had 90 left on our mortgage. It was very difficult to find a bank that would refinance under 100k. With 40k on the mortgage, it will be even more difficult!

Between the fees to refinance and the lengthening of the loan- it makes no sense for you.

[BaileyCatts]

Yea. I've run some numbers and it really doesn't add up in my case. If I owed a lot more still, than maybe. I am ssssooooo close to getting this thing paid off I definitely don't want to make it any longer than the 5.5 years I have left on it to pay, even if it would drop the monthly to practically nothing. Its mostly my sister, who has money bleeding out of her eyeballs and owns a house worth twice as much as mine, trying to convince me to get a lower rate. I don't think 4.5% is all that bad and it just doesn't make $$ sense to mess with it at this point.

[Rogue]

In that case, just let your sister know that you've considered it, ran projections, and realized that long-term it was better not to refinance.