Is it worth it to refinance for less than $2K benefit

[partgypsy]

We have a small mortgage at 3.75% interest. We've been offered to refinance at 3%, with about 2K in closing costs rolled in. looking at how much money we will pay in interest this far out, with the refinance, is really  1700 less in interest over the total, with payments a month being $20 a month less (12 month mortgage versus 11 years left).

Is it worth it? Our intention is to stay in the house but of course no one knows the future.

[NewStachian]

I also have a 3.75% interest rate. My lender approached me and said he could give me a 3.25% where I pay closing costs or a 3.5% where i don't pay an additional dime. I guess the incentive for them is if we refi with them we're less likely to get scooped up by another lender offering a good deal.

I went with the 3.5% and am going through the paperwork now. If you don't want to "double down" on the long time window strategy you might look into the no-cost refi (there is a cost, it's the extra .25% they make over the life of the loan, but it's a deferred cost and it's less than you were originally paying)

[Bartstache]

Check an amortizing mortgage calculator that takes additional payments and see what the difference in taking that $2k in additional rolled in costs would make if you just applied it to the existing mortgage.  Keep in mind that if you plan on paying off the mortgage early either by lump sum or by paying extra along the way, it minimizes any savings you might experience. 

We were hounded for several years to refinance our 3.75%, 15 year mortgage that sounds about the same as yours and as I started running the numbers it never made financial sense.   The only people who were going to benefit  were the banks.  We always paid extra and ended up just paying it off about 10 years early.

Anyway, best of luck!       

[retired?]

I also have a 3.75% interest rate. My lender approached me and said he could give me a 3.25% where I pay closing costs or a 3.5% where i don't pay an additional dime. I guess the incentive for them is if we refi with them we're less likely to get scooped up by another lender offering a good deal.

I went with the 3.5% and am going through the paperwork now. If you don't want to "double down" on the long time window strategy you might look into the no-cost refi (there is a cost, it's the extra .25% they make over the life of the loan, but it's a deferred cost and it's less than you were originally paying)

Hmmmm, if the lender is actually approaching you to do this, I would question where they are making their dough.

[retired?]

We have a small mortgage at 3.75% interest. We've been offered to refinance at 3%, with about 2K in closing costs rolled in. looking at how much money we will pay in interest this far out, with the refinance, is really only a 1K difference in interest payments, with payments a month being $40 a month less (12 month mortgage versus 11 years left).

Is it worth it? Our intention is to stay in the house but of course no one knows the future.

How much time is left on your current mortgage?  If closing costs are rolled in, aren't you paying the $2k in higher principle?  $2k out for $1k in.....

Not sure what you are comparing.  The length of each can have a large impact.

[partgypsy]

We have 11 years left, and they are calculating it as a 12 year loan, with the 2K in closing costs rolled in, which makes a grand total of about $20 a month less (but with about 9 extra months of payments). Total, we would pay about 1727 less in interest (including the 2K closing costs). A "no closing cost" loan is like 1/8 interest point less (not worth it).
Of course they are estimating the closing costs. If they are higher it may end up wiping out that difference.

Leaning towards not doing it, just wanted some feedback (had some errors in first post, fixed).   

[NewStachian]

I also have a 3.75% interest rate. My lender approached me and said he could give me a 3.25% where I pay closing costs or a 3.5% where i don't pay an additional dime. I guess the incentive for them is if we refi with them we're less likely to get scooped up by another lender offering a good deal.

I went with the 3.5% and am going through the paperwork now. If you don't want to "double down" on the long time window strategy you might look into the no-cost refi (there is a cost, it's the extra .25% they make over the life of the loan, but it's a deferred cost and it's less than you were originally paying)

Hmmmm, if the lender is actually approaching you to do this, I would question where they are making their dough.

I was initially very skeptical, and to some degree am just because I'm always skeptical when people are offering to save me money. My take on it is they're making their money from the 0.25% difference between the base rate and what they're offering. The base is 3.25% and they're offering 3.5%. I'm sure he's also getting some kind of closing commission.

I haven't been able to find out the negatives here. The mortgage market is highly competitive. I get several offers a week to refinance. I would imagine my lending company loses business from other companies who come in and poach your loan when rates drop, so maybe they're trying to get ahead of the curve by offering me a good deal first.

Maybe I'm missing something here, but I see how it's a win for them to keep me happy and keep my business and it's definitely a win for me. If anyone else has any insight into this, then I'd be happy to hear it.

This lender is also an ex-Navy guy who came highly recommended to me and has given me very honest advice when it came to my initial loan. He is with a small company and lives or dies on referrals, so it's in his best interest to make me want to recommend him as well.

[gluskap]

To me the difference doesn't seem worth it.  Like you said if closing costs ends up being higher you wouldn't really be saving that much.  Plus there's probably a good chance you might decide to prepay the mortgage or you might decide to move and sell which would make the little you might save even less.  Lenders are being very picky these days and it would suck for you to pay the cost for an appraisal and something in the underwriting process comes back and suddenly the refinance isn't approved or whatever.  We had to show a lot of documentation for our refinance.

[partgypsy]

Yeah for me decided it is not worth it, because of all those variables. She initially quoted me 3K in closing costs, but then amended it to 2K closing costs saying that they may not need to do all those things, but what if she's wrong.
At this point better to just either stick with program or knock it out.  Plus my mother's housing situation is becoming tenuous. I don't want to move, but if it is a choice between her being homeless, or permanently sleeping on our couch, we may need to look for larger home (only in a last case).