When Is It Smart To Refinance A Home Mortgage

by Alli Z.
(San Antonio, TX)

When is it smart to refinance a home mortgage? My husband and I bought our house in December 2006 with a 6.25% 30 year fixed rate, $200,000 loan with no points.

We put 20% down, and with our renovations we estimate we have $60,000 to $80000 in equity.

We plan on owning the home for the next 10 to 15 years, when we plan to downsize once the kids graduate.

We recently found we could get a 5.25% rate, with no points and around $2000 in closing costs that could be rolled into the loan.

This would bring the loan back to nearly the $200,000 mark. Is one percent difference enough of a savings to refinance?

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Refinancing Advice

Dear Alli,

"There are few things in this life that equals the sensation of being paid up." Kin Hubbard, Abe Martin's Primer, 1914

You be the judge! Based on what you just told me, after you refinance your home mortgage, it will take a year or so to reduce your mortgage balance back to where it is today.

I'm guessing by a 5.25% rate that you are going to switch from a 30 year fixed rate mortgage to a 15 year fixed rate mortgage. If that is the case, you will have your mortgage paid off before you downsize once your children graduate.

Another great choice for building equity faster is the 20 year fixed rate mortgage.

Best Wishes As You Refinance Your Home Mortgage,
Kate

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