Is Refinancing Always a Good Idea?

I am constantly bombarded by offers to refinance my mortgage.  Recently I was contacted by my mortgage company to refinance my current mortgage which is a 15 year fixed @ 4.75% interest to a 15 year at 4.25% interest.  Ones initial reaction might be to go for it.  However, upon further reflection and after consulting my credit union I decided it is not a good idea for me to refinance.  Personally I think if you have a mortgage under 5% it is pretty good.  Can you get a lower rate–possibly?  Is it worth refinancing? This will depend on the length of the mortgage.  If you have a 30 year mortgage is is most likely a good idea.  Please see the email exchanges below explaining why refinancing was not a good idea in my case.

My Email to the Credit Union

I currently have a 15 year fixed mortgage at 4.75%.  I have about 11 years left on the mortgage. I have a 26 payment plan and paying an additional $1,000 a month. Is it a good idea to try to refinance to a 4.25 to 4.35 % rate keeping a 15 year mortgage?

The Credit Union Response

Based on the current terms on your mortgage, I would not recommend a refinance, even if you could meet the qualifications to do so.

Your current rate is only 0.5% higher than our currently offered rate.   However, you would most likely pay at least 2-3% of the loan amount as closing costs.  This might be worthwhile if you had 30 years to amortize those closing costs.  However, you will be paying off any mortgage in 10-15 years, so you would not recover the up-front costs.

To summarize, I don’t see any advantage in refinancing.  You have a good loan, and your current practice of prepaying $1000 per months is very beneficial in terms of interest savings.  Again, even assuming that you could qualify for a refinance, my recommendation would be to stay with the program you have.

I hope this is helpful, and I would be happy to answer any further questions.

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