I have owned a house for 2 years and have a 30 year fixed rate mortgage at 3.75% interest. I am considering refinancing into another 30 year fixed rate mortgage at 3.49% interest. Refinancing would certainly lower my monthly bill and I will have broke even on closing costs after 2.5 years from the savings.
All of those details sound worth it to me. However, I am calculating out the difference that paying 2 extra years on this lower rate will cost me and noticing that in the entire lifetime of the loan, I will have paid more overall if I refinance, even though I save every month. I am uncertain if this data point really matters when it comes to the decision to refinance?
Here is what my monthly payments are for principal/interest only. Current loan: 1168 Refinanced loan: 1117
I have 28 years (336 months) left to pay on my current loan. That means over the remaining lifetime of my current loan I will pay $392, 448. However, if I take 30 years (360 months) times the refinanced amount, I arrive at a lifetime total payment of 402,120. This means I will have paid $9,762 more overall if I refinance. Of course, my PMI will be reduced with the refinanced loan and I have calculated that will be about $4,000 less overall. That being said, I am still paying more over the lifetime of the loan, despite having lower monthly payments and reduced PMI.
Does the overall lifetime payment amount have any realistic impact? While I doubt I will live here a full 30 years, I intend to live here at least another decade.