Posted on: 01st Apr, 2010 01:46 pm
is it in my best interest to refinance to a 30 year loan and keep paying my same payment and still try to pay it off in the five years. is the savings worth it
Not quite sure I have the complete picture of your current circumstance. But if you have only 5 1/2 years left on what was originally a 30 year mortgage, then I assume your current balance is relatively low.
With a relatively low loan amount, it becomes less of a deal to refinance because the closing costs become a larger percent of the current loan amount.
One of the simplest calculations to make is to compare the closing costs as a percent of the loan amount and compare it to the interest rate savings. If you're going to save 2% and it's going to cost you 2% in closing costs, you'll break even in about 1 year. (it's not perfect, but it's a quick yardstick and can be calculated with a simple calculator.)
In my market, a $50,000 loan would carry 4.5% in closing costs, while a $100,000 loan would carry 2.99% in costs.
These measures don't even take into account the fact that you could use those closing costs to pay down the loan instead of refinancing it.
With a relatively low loan amount, it becomes less of a deal to refinance because the closing costs become a larger percent of the current loan amount.
One of the simplest calculations to make is to compare the closing costs as a percent of the loan amount and compare it to the interest rate savings. If you're going to save 2% and it's going to cost you 2% in closing costs, you'll break even in about 1 year. (it's not perfect, but it's a quick yardstick and can be calculated with a simple calculator.)
In my market, a $50,000 loan would carry 4.5% in closing costs, while a $100,000 loan would carry 2.99% in costs.
These measures don't even take into account the fact that you could use those closing costs to pay down the loan instead of refinancing it.