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We are refinancing from a 30-yr to a 15-yr. Our current rate is 3.75%. The new rate for 15-yr is 3.875%. The loan is costing us $10,000 which is included in the loan. Our payments will go up approx. $600. We are thinking of selling this home and purchasing another in about 4 months. Does it behoove us to continue with the refinance?

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    I hope to see an update from you. As it stands, there's a lot of detail and clarification that's still missing. – JoeTaxpayer Oct 13 '14 at 16:19
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No.

The longer answer is that you are handing a banker 10K, which goes into his pocket and to pay for the refinancing expenses. Then in a few months you will be selling the house.

The purpose of the 15 year loan is to pay it off faster. In your situation you will pay off the loan in 4 months: no matter if you refinance. Before refinancing you owe X thousand on the mortgage; after refinancing you owe X thousands + 10K.

Save your money. Use it on a down payment on the next house, or for moving expenses.

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    Even if he stays for the next 15 years, this deal is awful. – JoeTaxpayer Oct 12 '14 at 17:25
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All I see is "we are refinancing to raise our raise from 3.75% to 3.875%."

There is a special place in hell for the guy who would sell you such a refi.

The fact that you are going from 30 to 15 and not the other way around is what's troublesome. Nearly all fixed rate loans will allow prepayments. So, calculate the new payment and start paying at a faster rate if that's what you wish. There's no need to refinance to do this, and certainly not at a higher rate.

Take the $10,000 and use it to prepay principal on your loan, all at once or $1000 per month. Even if you planned to stay in the house forever, this is the best advice you'll get.

To those in the opposite situation - refinancing from 15 out to 30 might help with cash flow. At 4%, a $200K loan has a payment of $1479 at 15 years, but $955 for 30. If that $524 difference is paying off 18% debt, or is matched 100% in your 401(k), a refi of this sort is worth it. If it's going to beer and cigarettes, well, not so much.

  • Appreciate the responses. Again, I'd like to add more info to our situation. We began this refi simply by asking questions on how to get rid of the PMI we have on our existing mortgage, which is approx. $340.00 a month. The refi would rid us of this. Does that make a refi any more appealing to us? – Fam of 6 Oct 12 '14 at 18:07
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    Welcome to Money.SE. Any added detail might change the answer. You should enter this into the question via edit. Is the $10K all to the refi expenses, or is any paying down the loan? Better yet, if you enter the exact "before and after" numbers, you'll get a much better set of answers. If the $10K is all expense, then $10K/$340 = approx 30 months to break even, and them some due to the higher rate. How many months until the PMI goes away naturally? – JoeTaxpayer Oct 12 '14 at 19:32
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Rule of thumb: Refinancing isn't worth looking at unless you can reduce your interest rate, AFTER closing costs are factored into the actual cost of the loan, by over 1%. Even then, you should run the numbers.

Rule of whole-darned-arm: If you're about to sell, refinancing makes no sense at all. The only exception I can think of would be if you could get a truly exceptionally low rate on a transferrable mortgage and make that part of the selling advantage of your house... but if you could swing that you wouldn't be paying market rate now.

(I did refinance to a shorter term. But I expect to be in this house for much more than 15 years, and I was able to drop the rate from 4.5% to 3.28% as part of that deal.)

  • "run the numbers" is right. I had a string of no-cost refis, and at no cost, even 1/8% savings might make sense. With any closing expenses, it's a question of calculating the break even based on interest savings, not necessarily just payment (which of course can drop quite a bit by going to a longer term. – JoeTaxpayer Oct 13 '14 at 0:56
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Buying a new house in 4 months time makes this all a bit moot; if that weren't the case, you'd better check with the bank whether you can make additional repayments or higher monthly payments. For example if you accepted that your payments went up by $600 a month after remortgaging, you could check with the bank whether you could pay extra $600 every month on your 30 year mortgage. Big advantage is that if you find out the amount is more than you can afford, you can quit paying the extra money at any time.

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