Refinance gurus- I'm looking to refinance my mortgage- will it be worth it?

Yes indeed!

And consider paying the closing costs out of pocket instead of adding to principal balance.

You can either lower your payments or cut down on the 18 years left.

May also want to look into the HARP program.

quote:

---

I have approx 18 years left on a 30 year mortgage, about 70,000 left to pay off on 5.5% rate. Is it even worth refinancing?

---

If you are itemizing your tax deduction it's certainly worth a close look if you qualify for the best rates. If you can borrow for 4% (just to pull a number out of the air) for 30 years then if the average long-term inflation rate is no more that 3% after-tax (assuming a 25% tax bracket) then you are essentially getting free money.

FWIW, if you can get a rate that low then don't do a 15 year mortgage, do a 30. The closer your after-tax rate gets to the rate of inflation, the longer you should stretch out the loan.

quote:

---

I would at least consider taking it down to 15 years and getting to 4% or lower (depending on current rates) - your payment will be close and you'll make 36 fewer,

---

This is my goal, even playing with the idea of going down to 10 years.

quote:

---

This is my goal, even playing with the idea of going down to 10 years.

---

I did some quick calculations at bankrate.com on their mortgage calculators and looked at the amortization table for the 30yr (you currently have at 5.5%) and the 15yr and 10yr tables at 4%.

Interest only on each loan in bold:
30yr (90k at 5.5%) - 40k (this is what you will pay over the last 18 years if you stay put).
15yr (70k at 4%) - 23k (monthly payment on principal and interest will stay in the 510-520 range)
10yr (70k at 4%)- 15k (monthly payment will go up 200 dollars).

quote:

---

If you can borrow for 4% (just to pull a number out of the air) for 30 years then if the average long-term inflation rate is no more that 3% after-tax (assuming a 25% tax bracket) then you are essentially getting free money.

---

Don't you nean if the inflation rate is no less than 3%?


Eta: I may be thinking backwards

quote:

---

Don't you nean if the inflation rate is no less than 3%?

---

What I mean is that if you think the inflation rate is going to be x% for the next 30 years (more or less), then is a bad idea to borrow for less than that rate after tax at the cost of shortening the loan term.

Let's say you have a choice between borrowing at 4% for 30 years, or 3% for 15 years (I'm making up numbers here). If you itemize deductions at the 25% bracket, then your choice is 30 years at 3% or 15 year at 2.25% (after tax rates). And let's also assume that the rate of inflation for the next 30 years will be around 3%.

Under these conditions is makes no sense to take the 15 year mortgage because your return on investing the higher monthly note is negative. The 30 year is great because you are borrowing at a rate exactly equal to the rate of inflation. If your interest rate = the rate of inflation, you are paying nothing for the privilege of borrowing it.

Full disclosure - the long-term rate of inflation is actually closer to 2% but my point remains the same. People seem to think that you should cut your rate to 0 and prepay to get there. This is not correct - your rate should be close to inflation, not to zero.