should i refinance my 30 year mortgage at 5% interest?

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i have a 150000 dollar mortgage on a 30 year loan at 5% interest i’ve been paying it off with extra payments every month for 1 year. i can refinance now at 4.25 percent . i plan on living here my whole life and want to use the extra money i save on refinancing to make even larger principal payments . is this a good idea or should i wait to see if the interest rate drops farther?

  1. Reply
    April 29, 2011 at 11:37 pm

    the interest rates probably won’t drop again anytime soon. It is my understanding that if you want to refinance a mortgage you would want a full point drop for it to be worthwhile. It probably wouldn’t hurt anything to talk to a mortgage broker though.

  2. Reply
    April 30, 2011 at 12:31 am

    I am not an expert, but I don’t think the rates will go much lower. Other than interest rate, the key determinant in whether to refinance is how much in fees or other costs you have to pay. If you are sure you have enough discipline to keep making extra principal payments, it isn’t important, but one problem many people have when they refinance is they put it on again for the full 30 years. You might look into financing it for only say 25 years if they’ll do it. Your payment will actually go to somewhat higher, but you’ll pay it off sooner and total cost will be less. Also if you can even make the extra principal payment on that one, you’ll be in very good shape.

    Kudos to you for having some good sense when you are, I presume relatively young.

  3. Reply
    April 30, 2011 at 1:28 am

    Right now you are paying 800.54 a month. If you go to the 4.25% FOR 30 YEARS YOUR PAYMENT WOULD BE 734.65, and you would save close to $ 24k. But when you put $ 200 a month extra (934 a month), you will chop off 10 years and 3 months off the time, and save $ 43,437.83 in interest. Yes it is worth it right now. I don’t know if the rates will go even lower, I have never seen them this low in all my life. I think the economy is coming back to life, albeit very slowly, so it’s your call if it goes lower before going up again.

    Play with your numbers on the calculator I use, below.

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