Refinance at 2.625%?! Should I stay or should I go?

[KiloRomeo]

Ok, the online calculators seem to think this is a good idea but I really don't understand enough to decide for myself. I need my mustachians to help.

We bought in October 2015 for $185k. Original mortgage was $144k at 3.875%. Current payment for P&I is $677.14. I just spoke to a broker that offered 2.625% for a 30 year term around $4k in closing costs.

If my math is correct, if I stick with my current mortgage between now and October 2045 I will owe an additional $74,427 in interest. With the refi the mortgage would end later, in 2050 but I would only owe $58,418 in interest and $4000 in expense for the refinance. That saves $12k in costs which is nothing to sneeze at but also not earth shattering. Plus that's $12k over the next 30 years while I will have the outlay of $4k now.  I've always said I don't want to payoff my mortgage early because I would rather have that money in the market working for me. I also think this home would be a great rental so the plan is to live here for 4-5 more years and then rent it. So I do think we will eventually see those savings, just not sure if it's worth it or not.

What do you say mustachians?

[secondcor521]

The simplest thing to do is to do a break even analysis.  This ignores the time value of money, the reduction in the mortgage balance over the break even period, opportunity costs, and tax effects, but in today's environment with your numbers those things are probably minor considerations.

Your current balance is probably just under $131K assuming you haven't made extra payments against principle and haven't skipped payments due to hardship.

The difference in interest rates is 3.875% - 2.625% = 1.25%.

You'll save approximately $131,000 * 1.25% / 12 ~= $136.46 per month in interest.

$4,000 / $136.46 per month = 29 months to break even.

Since you plan on owning the property longer than that, it probably makes sense to do that refi.  Of course, you should shop around and maybe get an even better deal.

[StarBright]

seconding secondcor521! And also 2.625% on a 30 year is the lowest I've seen.

We've been looking too and that is typically the rate I'm seeing for 15 year mortgages. (I'm assuming some of that might be location dependent though?)

[KiloRomeo]

Makes sense. I also have the option for 2.875% if i do a cash out refi and take $40k out.