Ask The Money Coach

Q: I Have a First Mortgage of $89,000 at 5.25% and 10 Years Remaining. Also a Second Mortgage of $20,000 at 6.0% and 7 Years Remaining. Is it a Good Idea to Refinance These Loans at 5.0% for 15 Years and Closing Costs of $7,000?

A: It probably does not make sense to refinance your existing mortgages. The wisdom of refinancing depends on three primary factors: 1) How long you plan to stay in the house; 2) How much a refinancing will cost; and 3) Whether your goal in refinancing is to save money on interest/finance charges over the long-run, or to simply free up monthly cash flow in the short term. To better help you understand your situation, I ran some numbers for you, using the mortgage calculator on Bankrate.com. Here is what I found.

For your first mortgage, your monthly payments should now be about $955 a month, including principal and interest. For your second mortgage, your payments should be about $292 a month. Therefore, I estimate your total mortgage costs to currently be at: $1,247 per month.

If you keep your existing loans, you will pay a total of $114,588 on the first mortgage, including $25,588 in interest over the next 10 years.
You will also pay a total of $24,542 on the second mortgage, including $4,542 in interest over the next seven years. Your total interest to be repaid over the remaining life of these loans is: $30,130.

By comparison, getting a new 15-year mortgage at a 5% rate means you’d cut your monthly costs by more than 30%. Your new payment would be $862, instead of $1,247 per month. You would be netting a monthly savings of $385. Since your closing costs are $7,000, it would only take about 18 months to recoup those closing costs and “break even” on your refinancing. So as long as you live in the home for at least a year and a half, the refinancing appears to make financial sense. And I know that these numbers initially look very attractive because who wouldn’t want to reduce their monthly expenses by $385?

If you plan to stay much longer, however, perhaps 7 years or more – or maybe even until the mortgage is paid off, this isn’t a smart move. Over the new 15-year term you would pay a total of $155,154, including $46,154 in interest. Based solely on the interest charges to be paid, the new mortgage would not be as good a deal as you currently have. If you keep your present loans, you’ll save $16,024 in interest (by paying only $30,130 instead of $46,154).

Plus, when you factor in the additional $7,000 in closing costs required for the new loan, it’s clear that you should just keep the mortgages you currently have. Not only will you pay less money over time, you’ll also own your home free and clear faster — up to five years sooner than you would with a new, longer, 15-year mortgage.

Related Questions:

• 89000 15 year loan
• what would my payments be for 20000 second mortgage at 4% over 10 yrs
• what are the payments for a home ;loan of 89 000
• refinance to 10 year loan a good idea?
• refinance for 10 years a good idea?
• morgage payment on a 89000
• is a good idea to refinance my second mortgage
• I have 7 years of mortgage left is it good idea to refinance?
• how much would my payment be for 89000 mortgage
• how can i pay off 89 000 in student loans
• first 5 to 7 years of mortgage
• whats the mortgage for 89000