Before anyone jumps in and says this: yes, I know there is not really any such thing as a "no cost" refinance. In this case, I assume the costs are being rolled into the interest rate, because the loan amount is not increasing. I will of course read all fine print.
The interest rate is still lower than what we pay now (although just a bit). We run light on cash like many MMMers and I wasn't planning on refinancing until a personal referral dropped this offer in my lap, so we really don't have the money to pay closing costs upfront. We're maxing our Roths and my retirement fund but only have about 13K in the efund (I'd like this to be closer to 20K and we are inching our way there).
Currently our P+I is $1330 and we are 3 years into a 30-year loan @ 3.75%. I calculated that over the remainder of the loan we will pay $160,000 in interest.
If we refinance to a 25-year mortgage, our P+I will only increase to $1350, and we can get a loan rate of 3.5%. That's obviously not much of a drop but I calculated that we will pay about $25,000 less in interest over the life of the loan.
One hitch: When we first bought our house 3 years ago, we didn't have 20% and we wound up pre-paying the PMI at closing. (Houses are very expensive in my area, although we did buy well within our means). In retrospect this may not have been the best decision, but the past is the past. However, if we refinance, we will have to add a monthly PMI payment of $40 a month until we hit 20% equity. Depending on what our appraisal comes in at, we aren't too far off but likely it'll take another couple of years before we get there. I'm not too worried about paying $40x24=$960, or even twice that, when we are looking at saving $25,000 in mortgage interest.
Some other details:
- I think we will stay in the house for at least another 8 years. I can't make any projections beyond that date. We have no interest in upsizing but downsizing is a possibility -- but it's possible, or maybe even likely, that we would rent out our house rather than sell it.
- Regardless of the refi, I think we are going to switch from monthly payments to biweekly to save more on the interest paid.
So any thoughts on this? Is there anything I'm missing? A lot of guidance online said not to do it but in my mind the numbers work out. We might be able to get a lower interest rate if we paid closing costs upfront, but we don't have the cash right now. And if saved up the cash or waited until we had 20% equity, rates might go back up. So it seems smart to do this -- right?