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In Your 50s? Should You Get Today’s Best Refinance Rates?

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If you’re in your 50s and thinking about mortgage refinancing there are things you want to consider beyond getting the best refinance rates and fees. Retirement is probably at the front of your mind and with all of your budget concerns do you really want to reset your home loan back to 30 years? Be careful when it comes to bad financial advice and your home loan…

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Here’s an example of some really bad financial advice from Greg Plechner at TheStreet.com you’ll want to avoid:

Even if one refinanced a few years ago, it may be worth going through the process again and potentially getting a loan with a lower rate and shorter term. The general rule of thumb is that refinancing makes sense if you can secure a loan at least 1% lower than your current mortgage.

http://www.thestreet.com/story/11151541/1/in-your-50s-take-advantage-of-low-interest.html

First of all Greg Plechner is a putz for quoting what is known everywhere else as the two percent rule of mortgage refinancing. This particular nugget of bad financial advice states that you should never refinance unless your best refinance rate is exactly two percent lower than your existing interest rate. Our friend has taken it upon himself to modify this to the one percent rule of mortgage refinancing; probably because interest rates are currently hovering near 50 year lows.

Rather than relying on a blanket one or two percent rule when it comes to your mortgage refi it makes more sense to answer the question “Should I Refinance My Mortgage” by evaluating cost vs. savings. Refinancing your home loan will take cash out of your pocket with the loan origination fee and closing costs.

Sure there are no cost refinance offers out there; however, you’re trading a higher mortgage rate to get your closing costs paid which in the long run will cost you more with higher monthly payments. Before you’ll gain any benefit from mortgage refinancing you’ll have to recoup your mortgage origination fee and closing costs from your lower payment amount.

You can easily figure out how long it’s going to take to recoup your closing costs by adding up all of your fees and dividing by the amount you’ll be saving each month. Here’s an example that our friend the putz Greg Plechner should have included in his article.

Suppose your closing costs are going to run $3500 and you’re saving $90 a month by lowering your payment with today’s best mortgage refinance rates. Simply divide your closing costs (make sure you’ve added the loan origination fee) and divide by the $90 you’re saving each month. In this case: $3500/$90= 38 months to break even which is just over three years.

Factor in your budget from the retirement planning you’re surely doing and if you’re comfortable with resetting your home loan back to 30 year amortization then mortgage refinancing probably makes sense in your situation.

You can learn more about your home refinancing options including how to avoid unnecessary fees and markup by checking out my free Underground Mortgage Videos.

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{ 2 comments… read them below or add one }

brian Z smitth February 10, 2012 at 11:54 am

Very poor advice given in this blog:

This approach (dividing the upfront cost by the reduction in mortgage payment) approximates the true break-even period only if the term on your new loan is close to the unexpired term on your old loan. In other circumstances it can lead you seriously astray.

The approach also ignores the fact that if you had not refinanced you could have earned interest on the money you pay upfront to refinance; and if you do refinance and the payment is reduced, you can now earn interest on the savings.

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Robert Regehr February 10, 2012 at 7:15 pm

How much are you earning on an interest-bearing savings account these days given a 2.4% rate of inflation? 0%? How exactly are you earning anything when paying down your debt is giving you a much better rate of return?

To quote Dan Green of the Daily Mortgage Reports.com:

At today’s mortgage rates, no matter what your loan balance, if you do a cash-in refinance and lower your loan balance by just $1,000 at closing, you’ll end up saving $1,718 over the life of your loan.

As for approximating the break-even point your point is only valid when going from a 15 or 20 year term to a 30 year term. If you go shorter your break-even point will come sooner which is far from a disadvantage. Seriously astray? Hardly.

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