Is it the right time to refinance

After the recent market turmoil and news that China will be selling some of its US Treasuries, is it a good time to refinance?  The chart above from bankrate.com would argue that we are near the perfect time to pull the trigger.



What you should consider in your decision to refinance your mortgage:

1) Your current rate -
  This is pretty open ended.  You want to look at how much it cost to refinance ~$1500-$3000 depending on the lender, and how much it will save you on a monthly basis.  You can look it up on line or I have a google sheet that has a basic amortization table to help you see the benefit of a better rate.  If the cost of the refinance can be paid back in savings on your monthly payment in fairly short order (1-2 years), you should strongly consider a refinance.

GenericHomeAnalysis (google sheet)

2) When was the last time you refinanced? -
  This is debatable, but you do need to be careful not to constantly be refinancing your mortgage, you'll never pay it off if you do.  The bottom line though, is if it saves you enough to pay off the cost of the refi in a year or two, it is probably still worth it.

3) How many years do you have left on your mortgage -
  If you are 10 years into a 30 year mortgage, it doesn't make a lot of sense to me to refinance to a 30 year mortgage as it will be adding 10 more years of house payments to your mortgage.  Now if you look at the savings you'll get on your monthly payment, it is very tempting, but you have to look long term on this.  Look for a 20 year mortgage instead, and if it still makes sense then proceed.

4) Is this an opportunity to shorten your mortgage and keep close to the same payment -
  A lot of you have very low rates already, so this might not work, but look at the 20, 15, or even 10 year mortgage rates and see if you can shorten your term and keep close to the same payment.  It might not work and I would caution you on making the move unless you have the flexibility, but it can save a lot of interest and free up money down the line.  You can look at the sheet above to see the comparison of a 30 and 15 year mortgage.

So, why refinance.  It might save you money in monthly payments, but you really have to see the numbers in a table to see the benefit.  Look at the example spreadsheet above and play with the numbers.  You are talking 10's of thousands of dollars for the life of the mortgage.  Even if you don't think you will be in the home longer than paying off the closing costs (2 years or so), things change, you might be in the home for another 10 years.

If you haven't looked in a while, it might be worth a check.