To refinance or not as I am pay nearly half toward the principal every month?
Pamela P asked:
I bought a home 3 yrs ago and have since paid it down almost in half. Now I am going through a divorce and am thinking about refinancing. The original loan interest rate is 6.375 and I can refinance for 5.2%. My question is should I refinance as I am paying almost half my monthly payments in principal or should I refinance and start all over again knowing my principal will be nearly nothing. Any advice will be appreciated.
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I bought a home 3 yrs ago and have since paid it down almost in half. Now I am going through a divorce and am thinking about refinancing. The original loan interest rate is 6.375 and I can refinance for 5.2%. My question is should I refinance as I am paying almost half my monthly payments in principal or should I refinance and start all over again knowing my principal will be nearly nothing. Any advice will be appreciated.
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Pamela, we can’t answer that question because we don’t have all your financial information to consider. Only you can conclude a answer based on information from lenders and what programs they have available to suit your financial situation. I’d say that it may be a good time for you to refinance only based on the current rates and what your rate is at 6.375. Some lenders may be able to do better than 5.3%, so check around. Consider FHA financing as well.
I’m no banker, but I’d say you were a poor candidate for refinancing. The old rule was that you’d refinance if you could drop by at least 2% and you were staying in the place for 2 years. Going from 6.3 to 5.2 is only 1% and with a divorce; who knows?
If you’ve paid it down to almost half, you’ve obviously been accelerating your payment. If you can continue that size of a payment, consider a 10 or 15 year loan. The interest rate will be even lower and you won’t be resetting back to 30 years. Finally, make sure that after paying all of your closing costs (whether they’re rolled into your loan or not), that the total amount of all of your remaining payments will decrease.