I got a call from a local bank offering to refinance my mortgage for 5.25%. On the surface this sounds like a great deal, since I’m currently paying 6.125% on my mortgage. But here’s why I’m not taking the offer, and some of these reasons may be things to consider if you too are faced with a similar option.
Checking the math.
My first question about the potential refinance was, “how much money will refinancing save me?” There are two answers to this question: 1. the amount of money I would save in monthly payments, 2. the amount of interest I will save over the total life of the loan, should I stay in the house until the mortgage is paid off.
I do plan on staying in the house until the mortgage is paid off, and this plays a big role in my decision not to refinance. Here’s why.
Refinancing a 30 year mortgage for a new 30 year mortgage is simply resetting the clock on when the house becomes yours. Yes, the total interest payment would be less, but that turns out not to be true in my case. More on that later, for now let’s go back to the math.
I used BankRate.com’s mortgage refinance calculator and enter the terms of the deal. Here’s the result:
| New monthly payment: | $ 1369.47 |
| Monthly savings: | $ 80.53 |
| Difference in interest: | $ 11592.53 |
| Total cost: | $ 3850.00 |
| Months to recoup costs: | 47 months |
So, as you can see, my monthly payment will be $80 less and I’ll save over $11,000 in total interest. It would take me slightly less than 4 years to recoup the cost of the refinance. But still, I’m not taking the offer.
More than just math.
There are some additional factors that make the refinance offer less appealing for me. For one, my mortgage is currently held through another local bank – a competitor to the one offering this new mortgage. While the interest of my current mortgage is not as low as the offer, there are other terms that are more favorable. For example, my current mortgage payments are set up as bi-weekly mortgage, for no additional fee. The new bank doesn’t offer that option. This will save me far more interest over the life of the loan than the refinance will.
Also, my mortgage payments are deducted automatically from my bank account. I like the convenience and peace of mind knowing that as long as I keep my paycheck, I won’t miss a mortgage payment.
My own mortgage refinance plan.
One of the main reasons I don’t want to take this refinance offer goes back to something I said at the beginning of this post:
Refinancing a 30 year mortgage for a new 30 year mortgage is simply resetting the clock on when the house becomes yours.
I look forward to the day when I have no more mortgage payments, and I don’t want to prolong the arrival of that date. To that end, I fully intend on refinancing to a 15 year mortgage in the next 5-7 years, preferably with bi-weekly payments. I will have shaved about 12 years off the 30 year term of the original loan.
Obviously, it’s better to take the 15 year mortgage but our current cash flow does not allow for those kinds of payments. But within 5-7 years, the kids will all be in school and my wife can re-enter the workforce and we should have a better financial picture and be able to afford the higher 15 year mortgage payments.
Mortgage refinance guidelines is a way to get even more mortgage refinance banks. So don’t make excuses, and don’t take it out on the bank.
I’m not sure I follow your point… what do you mean “Mortgage refinance guidelines is a way to get even more mortgage refinance banks” ?
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