I just closed on my loan in September and with rates getting lower should I refinance my mortgage?

Q.  I just closed on my loan in September and with rates getting lower should I refinance my mortgage?  

A.  Nancy, this is a great question and I am glad to see that you are monitoring your finances so diligently.  The answer is maybe!  The reason that I cannot answer definitively is that I do not have enough information.    

Basically you need to do a savings analysis between your current mortgage payment and what a proposed new mortgage payment would be.  Then you need to divide this proposed savings into the cost of a refinance transaction to see if it makes sense.  Depending upon the size of your loan, sometimes you can recoup the cost of the new loan in a year or so and other times it will take three years.  Here are two examples.  One client we refinanced their $630,000 5/1 ARM from 6.25% into a new one at 5.375% and saved them $525/month.  It will take them just over a year to recover the cost of the refinance (which by the way we built into their new loan so no out of pocket expenses for the closing) so it made sense for them.  Another other client we proposed to save them $440/month but he indicated he was going to move in two years so it did not make much sense.  Lastly, another client would go from a 6.625% rate to a 5.75% rate.  Sounds good right?  But after we figured they would need to have mortgage insurance on the loan due to the increased loan-to-value (the property value had declined) they would only save a net of $30/month so it did not make sense.  Lastly, another client was going from a 6% mortgage to a 5.5% mortgage saving just $250/month.  We decided that it would take them roughly 2 years to recover the costs and they were not planning on moving for seven to ten years so it made sense and we proceeded.

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About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.