Question on refinancing a home?

My friend has a home loan of $80,000 at 6.5% interest.

I believe the current loan rate is about 5.75%.

Should she be thinking about refinancing the 80k.

She doesn't want an adjustable rate mortgage.

Thanks for your response.

Question on refinancing a home?

find out how much the refi will costs her. A.

how much will a lower payment P%26amp;I be. B

how much difference old payment minus new payment. C

take 'A' divide it by 'C' equals to number of months she will need to stay in the house to recoop the money spent.

example 5000$ refi costs, 100$ monthly difference of payments.

5000$/100$ equals 50 months or 4yrs 2months before she breaks even.

all on FIXED rates only and no equity drawn out.

Question on refinancing a home?

There are costs associated with any re-fi. No one does this kind of work for free. She should explore all the costs and see if it is to her advantage to go through with it. Just shaving 75 basis points off won't matter much, unless she's staying in this home for good.

Question on refinancing a home?

You don't say how long of a term remains on the 6.5% loan?

Assuming closing costs on the refinance is about $1,600, it will take about 3 years to get back to even with a refinance reduction of 0.75%.

So if your friend is going to remain in their home for longer than another 3 years, and the total closing costs are $1,600 or less, it probably makes sense to refinance.

Hope this helps!

Question on refinancing a home?

As others have correctly commented, it will not be worthwhile to refinance unless costs related to the refinance (at 5.75%) are low to nothing. One option that could work is (but only if she/he currently has an FHA loan) is an FHA Streamline Refinance, which has no associated bank fees. However there will still be a title insurance update required as well as any local recording fees. At relatively low loan balance of $80,000 it may not be worthwhile with any fees. To really be sure, you need to check with a lender on all fees that would be incurred related to a refinance, and calculate then how many months it would take to recover this cost based on the savings you will get with the lower interest rate.