Thanks for posting that calculator. That was exactly what I was loking for. I was unaware that you could get a loan for a term other than 15 or 30 years. Looking at the data, if I change to a 15 year loan, the payments will be more and I can’t afford them. If I go 30 years, I’ll need more than a 1% drop in my rate to lower the total payments. If I can refinance for 25 years, it might make sense.
If you refinance for 30 years and pay your current payment then it will be paid off in less than 25 years. In fact, for a 30 year mortgage you can calculate how much you have to pay monthly for it to be a 25 year mortgage (assuming there are no pre-payment penalties).
At 6%, even at 30 years, the total interest is $327,120.10. As it happens, I overheard a banker blabbing on his cellphone at the airport today. It seems someone asked him about people wanting new rates before their loans closed. His answer was that if the rate was .25% less, it isn’t worth it for the bank to change anything, and they should refuse. If the rate is 1% less, then they should agree to the change, because it is significant.
ETA: Total interest is $263,446.55 at 25 years, which is clearly a big win.
I’ve refinanced a couple of times, and I waited for a 1% drop at least.
A half-point drop, and paying the new mortgage over the full 30 years, won’t save you money overall because as others have noted, your totals for that 30 years will probably be more than the total of the payments for the remaining 25 of the old loan.
Say your old payment is 1000 and your new one is 950.00 You’ve paid 60,000 over the past 5 years. You’d pay 360,000 over the 30 years of the old loan.
Over the course of the new loan, you’d pay 342,000. That plus the 60,000 you’ve already paid adds up to 402,000. So yes, you do pay more overall.
Reasons to consider refinancing anyway:
You might expect to get better return on your 50.00 a month, so at the end of the 30 years you will have more money in pocket than if you hadn’t refinanced.
You might really need improved cash flow right now, and that outweighs the long-term increase in expense.
You might be planning on selling in a few years, long enough that the monthly savings outweighs the closing cost. If your costs are 2500, that 50.00 a month becomes worth it after 4ish years.
You might plan on continuing paying the 1000 a month. On the lower interest rate, you’d be done with that mortgage before 25 years - so you save that way.
We’ve just gone through these calculations - our mortgage is 4.5 years old and rates are actually very slightly lower than they were back then. The difference isn’t enough to make it worthwhile - yet. If we could drop it a half point, it’d just about be worth it.
I pulled up my current mortgage info and crunched some numbers. A 10/1 ARM, which I normally wouldn’t consider, is currently a full point below my present 30 year fixed mortgage (which is about 2 1/4 years old). The calculators linked to upthread claim that I could save $2k per year if I refinance at no points / no closing costs, with a time-to-breakeven-point of “right now.” I want to talk to my mortgage servicer in the next few days.