Sunday, July 8, 2012

Refinance Research

We have started the process of researching refinance options for our primary home.   At present our mortgage balance is approximately $265,000 and we are 4 years into a 25 year mortgage with a fixed rate of 4.8%.

In 2009, we refinanced from a 6+% rate to the 4.8% rate, we paid about $4300 in closing costs with Wells Fargo.  Our original loan was taken out in 2004 and was a 30 year term and was with Wachovia.  We stayed with Wachovia/Wells Fargobecause the mortgage balance was counted as part of our relationship status with the bank and we received better banking privileges.  But, post Wells Fargo/Wachovia merger those advantages have generally diminished and are no longer worth our loyalty.

We are now looking at a 15 year mortgage with fixed rate of 2.75% rate (option #1).  Option #1 will cut 6 years off our mortgage term and will save us $181,000 versus our current loan.  Our monthly payment will increase about $110 and closing costs will be about $2600.

Option #2 is a 20 year mortgage with fixed rate of 3.25% with the same closing costs of about $2600.  Our monthly mortgage payment would decrease by about $185 and we would save about $145,000 versus our current loan.

Option #3 is a 20 year mortgage with a fixed rate of 3.37% with no closing costs.  Our monthly mortgage payment would decrease by about $180 and we would save about $140,000 versus our current loan. 

Option #2 and #3 reduce our mortgage term by 1 year. 

At present we are leaning towards option #1, the monthly costs increase only $110 and we save $180,000 and we are debt free within 15 years (not counting investment property debt which I don't).  We can cover the closing costs from our emergency fund or our escrow account (which is presently overfunded). 

2 comments:

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Anonymous said...

Between option 2 and 3, I would go with 3. That's because the present-day value of saving the 2600 in closing costs is worth more than an additional $4-5k in savings spread over the next 20 years. However, if you can afford it, option 1 is the clear winner. You'll save serious cash, even if you don't prepay.