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Jeanne in MN

Interest rates are 2% lower, would you refinance?....

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We started by wanting to add on a garage and have since decided against it when we saw we could refinance our home loan to be paid off in 15 years instead of 30.

 

We've lived in this home for 1.5 years. I don't know how long we'll live here as we are out in the country and I still feel lonely and isolated out here. I love the space and the insulation it provides our kids from poor influences in town (and we have experienced that). Otherwise, I don't see being here in 15years. It's been a serious emotional struggle.

 

Also, do you foresee problems with the economy affecting such a decision? My dad keeps going on about the economy, our national debt and how we should be saving our money and keeping a large stash at home and so on. Is he nuts or should we be more judicious about where we are putting extra money right now?

 

I hope I don't sound too rediculous, I just want to do the best thing for our future and I don't always trust my dh to think things through. Any input would be most appreciated. I know I brought a similar question up recently, so I hope I don't cause any eye rolling and "here we go again" thoughts. :o

 

Thank you!

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If you don't think you're going to be there for the long haul, then no, I would not refinance unless you can get really low fees, points, etc. If it will put you ahead in the next 3-5 yrs then do it, otherwise it sounds like you might be moving anyway and then it won't have been worth it.

 

I don't know how far out you are but do you think it might get easier living rural as the kids get older and can drive themselves? Is it you that feels isolated or the kids? Just some things to think about... :)

 

Oh, and I would never stash money at home! You can invest in CDs if risk is a concern but at least you will make something on them.

 

And assuming your home loan is about 6-7%? You have to remember that will be lowest interest rate you'll ever get on any loan so it's worth keeping that loan vs paying it off and having to get another loan down the line for something else. Make sense? My DH explains this way better than me ;)

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you need to figure out your break even point. How much would the lower rate save you a month? Now, how much would you be paying in fees? If the fees are say 3000$ and the re-fi saves you 500$ a month you would have to live there 6 years just to break even. Keep in mind that the Fed determines bank rates, not mortgage rates. The banks determine the mortgage rates and although they often follow the fed... you need to check. Just because the over-night bank lending rate has dropped doesn't automatically mean you can get a lower interest rate.

 

Unless I was staying for the long haul I wouldn't bother with a re-fi. We may refinance our house a couple of years from now but we won't do it now because my dh may be changing jobs. We will know in a year if we want to move closer to the new job, or stay put.

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If you want to compare numbers, be sure to compare the amortization tables for your existing loan and for the refinance loan you are looking at. 15 year loans pay off a lot faster than 30 year loans. In other words, look at the amount of money going towards principal every month on the 15 year loan versus your existing loan. That, depending on how much you have to pay in refi fees, might help it be worth it even if you sell because you would have more equity. You should be able to look at this on an online mortgage calculator (I look at the one on bankrate.com).

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If the fees are say 3000$ and the re-fi saves you 500$ a month you would have to live there 6 years just to break even.

 

With fees of $3,000 and savings of $500/month, you'd break even in 6 months. For a 2% drop, I'd definitely consider refinancing.

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Call your mortgage company. Many will do a "no-fee" or "low fee" refinance to keep your business. Like someone else pointed out, look at the difference in your pay off down the road. We move a lot and 2 homes had 15 yr mortgages vs 30. Equity builds up much more rapidly with a 15 yr mortgage. Unfortunately different regions of the country have different housing prices, so some places we simply can't find a house we can afford at a 15 yr payment.

 

Mortgage rates are definitely coming down. Our quoted rate between yesterday and today was a 1/4% down and they believe they will drop again in the next 48 hours.

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With fees of $3,000 and savings of $500/month, you'd break even in 6 months. For a 2% drop, I'd definitely consider refinancing.

 

Sorry I meant "saving of 500$ a YEAR" - my bad, but you get the point. You have to figure out when you will really start saving money.

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although I must admit, if money is tight, it is nice if you can increase the money available to pay bills and tempting to just roll the fees into the loan.

 

We have friends that mentioned that they didn't like their 15 year loan because of its impact on their taxes. We have had a 15 year loan for a few years now, and boy does it seem to pay down quicker. (We also make 13 payments in a year.) Since we are 55, it is nice to know that we will not have a mortgage payment when DH retires. :)

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