Refinance At The Snowball's Expense?
Dave hopes that Janie will take advantage of a great opportunity to refinance, but he warns her also about points and origination fees.
QUESTION: Janie has a 30-year fixed mortgage at 7.5% interest. They have a chance to get refinanced for 15 years at 5%, but they’ll have to pull $3,000 from their debt snowball fund to make that happen. What should they do? Dave tells her about an option that she didn’t consider.
ANSWER: You can roll your mortgage refinance costs into the refinance without a problem. Just make it part of the loan when you’re refinancing. You want to get a par quote, and 5% is a little bit low right now. You can get around 5% on a par quote with no points or origination fees. Do not pay points when you refinance mortgages. That’s called a par quote or zero quote.
The reason for that is that any time you’re paying origination fees or points, you are just prepaying interest. It doesn’t save you enough in your payment amount or interest rate to justify what points cost in a refinance given that the average mortgage is paid off in 5.6 years. Do this refinance now while the rates are down and lock it in.