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Mortgage refinancing and fees – and prepaying mortgage?

Our current 30-year mortgage is at 5.25% but I think we could get it down below 5%. We’re about 5 years into this 30-year mortgage and haven’t missed a payment (and don’t expect to). Here are my questions:
A) Even if we got a loan down to under 5%, would it be appreciably different over the long-term from a financial standpoint?
B) Are banks in existence that would allow a couple to refinance and pay zero fees? Over the course of even 15 years, banks make a lot of money from interest… why charge someone a fee? I realize it’s not up to me.

C) If we maintain our 30-year mortgage… say we don’t wind up refinancing… does it save a person/couple a lot if they were to pay one or two extra payments a year? Loan amount 200k, interest 5.25%.

Any advice appreciated.
First responder: no, that site didn’t help. Why would you waste that 10 seconds of my life FOR me? Idiot.


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2 Responses to "Mortgage refinancing and fees – and prepaying mortgage?"

  1. HEATHER says:
    It probably is not worth refinancing unless you are going to be able to drop down to 4.25% or so. Pay extra on your mortgage. Make sure you indicate on the mortgage payment coupon that it should go to “principal”.
  2. Lauren F says:
    Congratulations – you have a great rate and are doing exactly as you should to save on interest.

    If you owe $200,000, then a 0.25% decrease in interest rate will save you about $30 a month in interest over the thirty years. A 0.5% interest rate decrease will save you about $60 a month. As the amount you owe decreases, then the savings from the lower interest rate also decreases.

    In total, it’s about a $13,000 difference in total interest costs between the two rates, but considering inflation, the amount of time involved, and the tax deductions savings, it isn’t a lot, especially if you would have to pay fees to refinance (things like title insurance, title transfer, attorney, etc.). Plus, if you refinance to a new 30 year mortgage (losing the 5 years of back history) you will eventually pay the same amount because you will be paying it back over a total of 35 years (5 you already did plus 30 more). So, for this small a change, I wouldn’t bother with a refi. If you can get a refi that saves you at least 0.75% it might be worthwhile.

    B) Banks charge fees because it costs them money to provide this service and to pay a return to the people who provided the money to loan to you. Some offer “no cost” refis, but they are not really “no cost”. The costs are baked into the rate they charge you. Always compare offers based on total APR, not the advertised rate, to find out where the fees are hidden.

    C) If you make an extra payment a year you will substantially shorten the loan, perhaps saving as much as 7 years off the loan, and that will save you a lot of money. However, I would only do that if you are contributing as much as possible to your 401k/IRA/retirement accounts and you have no other debt. The reason is that once you prepay or paydown your mortgage, if you find you need that money back out again it is very difficult, expensive and time consuming to try to get it back out. Always fully fund your retirement and emergency savings account before considering making extra payments on your house, especially when you have an interest rate this low.

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