Is It Time to Refinance Our Mortgage?

Is now the perfect time to refinance our mortgage? Some experts seem to think so. We plan to pay off our mortgage early, so I’m not sure it makes sense in our situation.

However, if you have a rate over 5.5% or so, it might make sense for you to consider refinancing to a lower rate, particularly if you have excellent credit and could qualify for a rate in the 4.2-4.5% range. It would probably shave a couple hundred dollars a month off your mortgage, depending on how much you’d have to borrow. Is this something you’r currently considering?

It’s been a while since I did a roundup, but I’ve run across a few excellent articles and a couple new-to-me sites over the last couple weeks and thought I’d share them with you.

The Frugal Roundup

Reader Story: Winning the Lottery. Nice to hear a story about someone receiving a windfall and not blowing it entirely. (@Get Rich Slowly)

Building Wealth Using Dividend-Paying Stocks. Tyler shares his thoughts on building wealth the slow and steady way – by investing in dividend stocks. I’m a big fan of this strategy as well, but I’m waiting on a more significant pull-back to begin investing again. (@Debt Reckoning)

4 Personal Finance Principles That Would Make Your Grandfather Proud. Thoroughly enjoyed this guest post from Baker. I often stop and asked myself – what would my grandfather do - when making financial decisions. (@Art of Manliness)

Tips for Buying Second Hand Furniture from Thrift Store/Yard Sales. A couple years ago we found a nice leather loveseat with a working reclining feature at a yard sale.  (@Balancing Beauty & Bedlam)

Ready to Invest: Types of Stock Orders. Know the difference in a market order and a limit order, and when to use one over the other? If not, read this post, which provides a nice summary of the two types of stock orders. (@The Wisdom Journal)

Frugal Fatigue. We’ve all experienced this at one time or another. I’ve found the best remedy is to budget a small splurge (with cash) and then get back after it the next month. (@Dividend Mantra)

One final note…the Frugal Dad Facebook page is approaching 3,000 fans. If you haven’t “Liked” us yet, please drop by and follow us there as well.

Comments

  1. Definitely thought about doing a refi, but when I got a list of recent sales in my area.. it looks like I’m up to 90% LTV.. I think under the HARP program I can still do it, but if I remember correctly, I would be subject to extra fees in order to process it.

  2. We tried to refinance and it was a nightmare. Because of all the “off the charts” appraisals from a few years ago, you can no longer choose your own appraiser. The names are put into a hat and you get a random appraiser.
    We ended up with an appraiser that mis measured our house by 250 sq ft. It dropped our value by $30,000. We were trying to figure out how she was off by so much when we realized she didn’t even have our layout drawn out right. One obvious one was she measured a 10ft wall only 7ft.
    Her comps were from the wrong area and her comps and pictures didn’t match up.
    Nonetheless we were not able to refinance because she managed to drop the value of our home significantly. We know it lost value, but according to her calculations we had lost $75,000 in just over a year.
    We called the company and the gal there was incredibly sympathetic and sorry and said as home owners we can’t even fight for ourselves. We even tried to deal with it through the credit card company, but nothing. The only thing we could do is pay another $400 for another one and hope we got a better appraiser. Needless to say we didn’t because at the time we knew we were going to be cutting it close as is and we just couldn’t afford another appraisal gone bad.
    What we learned from this is follow your appraiser around, even if the don’t want you too. She wouldn’t go into the bed rooms so she didn’t know we had walk in closets in every room. She didn’t go outside and see that we had added a new deck and she obviously couldn’t manage a tape measure along.
    The biggest bummer is that we could have knocked off a few hundred dollars. That money would have then gone into the economy.

  3. I just finished a refinance last week. I went from 30 year @ 5.25 and a 2nd @7.00 to a 15 year @ 3.75. My payment went up $45/month but I will pay off 8 years earlier and will save me 80k over the life of the loan. As my first 15 year mortgage, I am amazed looking at the amortization schedule how fast the principal decreases.

  4. I think you need to plug in all the numbers and see how many years it will take to recoup the couple thousand in fees for the refi.

    If you are staying put 2-3 years at least, I believe they say a gain of 2% points is needed to make it worth your while.

    Also it depends on how many years you have left on your original mortgage. Sometimes just plopping down an extra $100-$200/month will pay the mortgage off cheaper, with the savings in interest by lowering the principal faster, than spending the $$ in fees to refi.

    If you have a short time left, run the figures and see if throwing the $2000 – $4000 for fees right against the mortgage right now would make the same difference as getting a refi would. Sometimes you will be surprised… but you won’t know without running out an amortization chart.

  5. We did a refi a year our purchase. (We’ve been there about 3.5 years now.) The number said we needed to be there 4-5 years to break even and the shaved of payment was important as we had just had a child. Our mortgage is currently the “extra money sink” as it were since we are a little under the current market worth. We bought when things had dropped, but weren’t quite done in our area. I expect us to be even within a year or less, and I believe that extra money paid in will only shorten the time to make the re-fi break even. (I haven’t tried to figure the math on that one out though.)

  6. Thanks for the mention FD!

    Interesting article on the lottery winner there. It’s good to hear of someone having their wits about them when confronted with a large windfall.

    I don’t have a mortgage, as I currently live pretty frugally in a small apartment…bu this seems like a great time to refinance if you’re in the market.

    Take care!

  7. Just closed yesterday on a two year old home down from a 5.375 30-yr to a 4.25 30-year. Also closed last month a re-fi on an investment property we own from 5.75 to a 3.25 5/1 ARM. Yes, I know interest rates will rise at some point…but they are not going to jump out of the blue. Also, with a rental I needed flexibility in the event it goes empty for a period of time. As it is, we have renters for the forseeable future and are pumping that extra money back into principal.

  8. We’re working on refinancing 3 years after purchase. From 5.875 to 4.25 and sticking with a 30 year. Will pay almost $200 less per month, and will break even in about 2 years. Appraisal was first we’d ever had and went fine– our home has not dropped in appraisal value since we purchased it 3 years ago.

  9. Not getting into appraisals, right or wrong, I am just going to look at the math.

    Frame it right, and this becomes an easy question to evaluate.

    1) A = refinance costs as a percentage of the loan value.

    For example, if you had to pay $3,000 in points, appraisal, loan thingy fees, etc. and your mortgage balance is $150,000
    then your refi cost as a percentage of balance
    is $3,000 = $150,000 = .02 = 2%
    so
    A = 2%

    2) B = the difference in interest rate.

    Current Rate = 5%, New Rate = 4%,
    B = 5% -4% = 1%

    3) ROUGHLY SPEAKING (yes nitpickers I know this is not exact),
    Years to break even on cost of refi = A / B.
    So in the above case, it would take about 2 years of paying 1% less interest to recover the 2% of loan value you paid for the refi.

    Please note this is true whether you write a check for the refi costs OR “roll them into the load balance”.

    Once you you know how long it will take you to get to breakeven, you can evaluate your personal situation and act accordingly.

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