I know the rule many people use is that is you can lower your rate by a half a percent or a quarter of a percent you should refinance.  THEY ARE WRONG THERE ARE OTHER CIRCUMSTANCES TO TAKE INTO ACCOUNT.

If you have been in a mortgage for over 3 and a half years it probably is not wise to refinance.  Here is an example why you should not refinance.

Let's say you got a mortgage for $200,000 at 6.125% back in Nov 2004.  ( Your first payment was in November).  So going off an amortization schedule your current balance this month would be $189,209.15.  You would have paid down the mortgage by $10,790.85 in the last 4 years.

But you would have paid $49,,470.44 in interest in the last 4 years.   So your mortgage loan officer is calling you.  They are telling you that they can save you money.  They can get you a no cost loan at 5.625%.  Your new payment on a $189,000 mortgage would be $1087.99  A SAVINGS OF $127.23 A MONTH!   A NO BRAINER RIGHT......  WRONG, WRONG, WRONG.......

Now you have a new thirty year mortgage instead of 26 years left.  So now you have 4 additional years of interest.  If you run a amortization schedule on the $189,000 mortgage starting in January at 5.625% you will find you will have to pay $41,375.63 of interest on those four years.

So divide that $127.23 into that $41,375 of interest on those four years.  It will take 27.1 years to break even and you added 4 years to your mortgage.  NOT THE SMARTEST FINANCIAL MOVE!

Let's look at this a different way.  On your first mortgage of $200,000 you would have paid $237,479.59 in interest over the 30 years.  But wait you already paid $49,470.44 in interest.  So that means you only have $188,009.15 in interest left to pay.  But that nice loan officer wants you to get that new loan.  That new loan will have $202,676.62 in interest to pay. 

So does it make sense to get into a loan that will add four years to the loan and have an additional $14,667.47 in interest to pay.  202,676.62 - 188,009.15 = $14,667.47 in additional interest.  And take 27.1 years to break even when you could be finished with your current loan in 26 years.  NOT THE SMARTEST FINANCIAL MOVE.

The only reason you would want to do this loan in this circumstance is that you need better cash flow.  If you are in financial problems.   If you want to go over your circumstances and your loan scenario on a Michigan home loan feel free to call me or email me.  cell 313-310-9855 or info@russRavary.com

I have a bet with another loan officer telling him that he was screwing his clients by doing a refinance under those circumstances.  All I know is that I am going to be eating and drinking good next week on him. 

Gotta go, I have to call my fellow loan officer and see if we can go to a nice restaurant.