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PFT #32 - Don't Refinance Your Mortgage Just to Refinance

Updated: Mar 5, 2022

This week’s personal finance topic is about refinancing your mortgage.

Interest rates have been extremely low for several years which most American’s have taken advantage of; and they should.

The allure to make this move is that mortgage payment will be lower; however, you don’t want to refinance just to refinance.

It is important that you review the math especially if you will not be in your house for 5-10 years depending on the situation.

For example, $160,000 at home with fixed-rate 30-year mortgage at 4.45% interest to be refinanced at a rate of 4% reduces the monthly payment by $35 and results roughly to $6,000 of savings over the life of the new loan.

Now if we take the average closing costs at just over $4,300, it would take a little over ten years to recoup those fees.

Hence, the shorter the time span in which you choose to sell your home results in you losing money.

Here’s another side note - every time that you refinance, this means a new mortgage begins; which in this example is another 30-year cycle.

So take your time not bite on the dangling carrot to get a lower interest rate and monthly payment.

Remember it is the math that makes the decisions, not what appears to look good.

Episode Link:

Refinancing a Mortgage Might Not Be the Best Choice


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