worth it to refinance?

[juliabug]

I received an offer in the mail today for a no cost refinance, nothing added to the balance either. If it is legitimate, we could save 0.5% on our interest rate. Is it worth the hassle? (I know the answer will depend on how long we will keep this house, but I have no answer for that. Just answer what you would do.) Besides tacking on fees to the mortgage balance, for what else should I watch out in an offer like this?

[msmerymac]

Is it a shorter term than what you already have?

For example, I know people who have owned their houses for 10-15 years and refi-ed to another 30 year mortgage. Since you pay mostly interest up front, it means they will be paying mostly interest for like 30 years... and paying a mortgage for 45 years. No matter how good the rates are, you're still paying more in interest than is necessary (even if the payment decreases substantially). But if, for example, you've lived there for 4 years and you're looking to refi your 30 into a 25 (or even if you've lived there 1.5 years and want to re-fi to another 30), that's a different story.

[juliabug]

Sept 17, 2014 15:27:22 GMT -5 msmerymac said:

Is it a shorter term than what you already have?

For example, I know people who have owned their houses for 10-15 years and refi-ed to another 30 year mortgage. Since you pay mostly interest up front, it means they will be paying mostly interest for like 30 years... and paying a mortgage for 45 years. No matter how good the rates are, you're still paying more in interest than is necessary (even if the payment decreases substantially). But if, for example, you've lived there for 4 years and you're looking to refi your 30 into a 25 (or even if you've lived there 1.5 years and want to re-fi to another 30), that's a different story.

We are less than a year into a 30 year mortgage and would refinance to another 30 year. I've been paying extra though, so I don't know if that changes the calculation. I would continue to pay extra if we refinanced too.

[msmerymac]

Sept 17, 2014 15:30:04 GMT -5 juliabug said:

Sept 17, 2014 15:27:22 GMT -5 msmerymac said:

Is it a shorter term than what you already have?

For example, I know people who have owned their houses for 10-15 years and refi-ed to another 30 year mortgage. Since you pay mostly interest up front, it means they will be paying mostly interest for like 30 years... and paying a mortgage for 45 years. No matter how good the rates are, you're still paying more in interest than is necessary (even if the payment decreases substantially). But if, for example, you've lived there for 4 years and you're looking to refi your 30 into a 25 (or even if you've lived there 1.5 years and want to re-fi to another 30), that's a different story.

We are less than a year into a 30 year mortgage and would refinance to another 30 year. I've been paying extra though, so I don't know if that changes the calculation. I would continue to pay extra if we refinanced too.

I'd check the amortization schedule for your current loan and the refi just to make sure you wouldn't be paying a lot more in interest over the life of the loan. Good luck! 1/2 a percentage point is a lot.

[heliocentric]

I'd also check the amortization schedule to see how it plays out if you only stay a few years since the interest is front loaded. Although it might not make much difference since you're still so early into the loan.

Is it really no cost? As in no appraisal or docs fees? No title search? Nothing? If so, good for you. I didn't think those existed anymore.

[juliabug]

Sept 17, 2014 16:18:47 GMT -5 heliocentric said:

I'd also check the amortization schedule to see how it plays out if you only stay a few years since the interest is front loaded. Although it might not make much difference since you're still so early into the loan.

Is it really no cost? As in no appraisal or docs fees? No title search? Nothing? If so, good for you. I didn't think those existed anymore.

Supposedly! It does seem to good to be true.

[Deleted]

Most of the no cost do have a little hidden catch in them.

Get the entire summary of costs in writing (there is a specific name for that form but I simply cannot remember it!)

Once you have that, you can compare your current amortization with future amortization and go from there.

You probably got this from a mortgage broker, not a bank, and if that is the case, there has to be a way that they are making money, so you could ask them. "Once I see the fee schedule, and confirm that there are zero out of pocket fees (and no increase in my mortgage, since you are not hiding them by rolling them into my mortgage), that will help. But, if that is the case, how do you get paid by helping me refinance? What is your fee schedule?". Something like that is totally fair to say.

Note that many companies are pushing no cost refinances, but what they do is simply bake it into your new mortgage. So, if you had a 100k balance, you'd pay nothing out of pocket but your new mortgage would be 105k (if you had 5k closing costs for example.)

Nothing is free, so just find out where the fees are and do the math. If you can save money, I would definitely refi. I am assuming a 15 year or 20 year mortgage would not work for you? The shorter the term, the more money you save due to paying far less interest over the life of the loan.

[Deleted]

Related Forbes article. Keep us posted, I am so curious to hear what the scoop is with this offer.

www.forbes.com/sites/moneybuilder/2012/03/28/the-no-cost-refinancing-myth/