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Refinance or not?

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UZ22
12/3/12 1:02 PM
Since I told my friends what a great place Fatwallet is, everyone is asking me questions...

So here is a friend's question regarding refinancing:

Current Loan: 165,000.00
APR: 3.5
Terms: 30 Fixed
Payment: 916.00
Extra Payment towards principle: 500 every month.


Does it make sense for him to refinance?

Refinance APR: 3.0
Terms: 15 Fixed
Refinance closing cost: $3,000.00

Makes about 50K a year
WikiPost
12/3/12 1:02 PM
fw101
12/3/12 1:28 PM
UZ22 said:   

Since I told my friends what a great Fatwallet is, everyone is asking me questions...

So here is a friend's question regarding refinancing:

Current Loan: 165,000.00
APR: 3.5
Terms: 30 Fixed
Payment: 916.00
Extra Payment towards principle: 500 every month.


Does it make sense for him to refinance?

Refinance APR: 3.0
Terms: 15 Fixed
Refinance closing cost: $3,000.00

Makes about 50K a year


You can do this using one of the several online refi calculators. Here is a link to the mortgage professor refi calculator.

What you should be looking for is:
(a) the breakeven period: Since you pay 3k upfront, it takes a while to recover that with the lower APR. How long that is and are you likely to be in this house (or with this mortgage) for at least that period?
(b) 15 years would mean higher payments. Can you afford this based on monthly cash flow. Since extra payment of $500 is already being made, perhaps. But with the refi, that is no longer optional but required.
hirenrp
12/3/12 2:03 PM
3000 is 6% of your loan for only a .5% reduction. Back of my hand math says no. Just keep paying extra principle or look for a "no closing cost" loan @ Penfed.org.

Red for you, only because he should come post his own question instead of asking you to do it as well as not searching (we had a similar thread pop up recently).
brettdoyle
12/3/12 2:13 PM
On a 15 year mortage he should be able to get something like 2.675, which is what penfed offers.
tajar96
12/3/12 5:34 PM
I think he can do better than 3% for a loan amount of that size. I have been in the market for refi and for any loans greater > 100k the rates are definitely better than 3%.
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