HOW MANY TIMES SHOULD YOU REFI?

I have been in my current home for six years and I have refinanced on two occasions.  A few years ago, when rates first went below 6%, I felt like I was being given a gift and I locked in a rate in the mid 5's.  Then, last year, rates dipped below 5% and I felt like there was just too much money to be saved by refinancing once again.

Now, 30-year rates are near 4% (with 15-year rates in the mid 3's) and I'm hearing the siren song again.

I do not want to paint the picture that refinancing is automatically a great move for everyone.  It can be an expensive proposition, and unless you shorten up your loan term (which I recommend if you can afford to do it), you essentially recast your loan onto another 30 year payment schedule.

You also need equity in your home, which is not something everyone has these days.  And if you made a 20% down payment (to avoid mortgage insurance) and your home has lost value, you may either have to bring in a large amount of money to pay your loan balance back down to 80% of current appraised value, or take on the extra expense of mortgage insurance.

So there are reasons to avoid refinancing, or at least think critically about it, before you sign on the dotted line.  But when the savings are just too great to ignore, it's hard to resist.

The one constant through my six years in this home is that I've always made additional payments on my mortgage each year, without fail.  I set a housing budget six years ago and I've stuck to it... so now, even though my payment is significantly less than when I first moved in, I make the full payment as if it's still my original loan. 

Generally speaking, one additional payment each year on a 30 year loan will shorten the life of your loan by about 13 to 14 years.  That's a huge savings opportunity and solid financial planning.

So now, with 30-year rates around 4.00% and 15 year rates even lower, what to do? 

If I refinance into a 15-year loan with a rate in the mid 3's (essentially the same payment I had on my original 30-year loan, which was in the high 6's), I'll have my house paid for in less than 20 years.  That basically means I own my house free and clear 30% faster than with my original loan.  That's a good deal.

The best thing to do, as always, is to gather enough information to make informed decisions.  Talk to a mortgage lender you trust and see how much money there is to be saved by taking advantage of today's incredibly low rates.  And if home values are a concern, give me a call and I'll be happy to pull some comparable area sales information so you can proceed with clarity and confidence.