I’m planning to sell my home in two years and just got approached about refinancing. I’m not sure if it’s worth it, but I’d love to hear others’ opinions.
Here are the details:
Current loan balance: $247K at 7.25%, with a $2,122 monthly payment.
New loan offer: $258K at 5.99%, with a $1,925 monthly payment. Closing costs are $9K, which would be rolled into the loan.
I’d save around $6.5K in monthly payments (plus 1 month without a payment), but I’d still end up owing $2.5K overall. What do you think?
A no-cost refinance is the only way to go if you’re planning to sell soon. Don’t finance your equity into the loan—it’s just throwing money away. If the lender can get you a lower rate without increasing your loan balance, then refinancing might make sense.
Ira said: @Darby
No-cost refinance can be misleading. They often just add the fees to the loan amount, which increases your overall debt.
Actually, in a true no-cost refinance, the lender provides a credit to cover all closing expenses, based on the interest rate. A higher rate gives a bigger credit, which covers all the fees. To know if it’s truly no-cost, compare your current mortgage payoff balance with the new loan amount—if they’re the same, there’s no extra cost.
I’m a retired mortgage underwriter, so I’ve seen it all.
Simplify the numbers: take sections D and E of your loan estimate (that’s where the closing costs are), then divide that by your monthly savings. That’ll give you the breakeven point.
The math here is tricky, but let’s look at it simply:
You’d save $197 a month and plan to sell in 24 months, so you’d save about $2,364 total. The one month of no payment isn’t really savings—you’ll still owe taxes, insurance, and interest. Compare that to the $9K in closing costs, and you’d end up owing more when you sell. I’d say pass on this refinance.
If you want a more detailed breakdown, look at how much of that $9K is for taxes, insurance, and prepaid interest—what’s left is your true fees.
Shay said: @Keir
$4,151 is for taxes, insurance, and prepaid interest.
So you’ve got $5K in fees. It’s a toss-up at that point. If skipping a payment and saving $200 a month helps you now, it might be worth it.
Also, since the full $9K is rolled in, you’ll get a check from your current escrow when you refinance. It’s like borrowing some money from your future self. If that helps your situation now, go for it.
Shay said: @Keir
That makes sense, but I’m comfortable with my current payment. It does feel like just robbing Peter to pay Paul.
You’re right. With $5K in rolled-in costs and $197 in monthly savings, it’ll take you over 25 months to break even. Since you’re selling in 24 months, it’s probably not worth it. You could ask about a no-cost refinance (where the higher rate covers the closing costs), but it likely won’t improve your situation much. I’d recommend shopping around with other brokers to see if anyone can offer better terms, but honestly, this might not be the best move for you.
Two weeks ago, you could’ve gotten a 5.99% rate with the closing costs fully covered by the lender. That would’ve been a no-brainer. Now you really need to weigh the costs versus savings and figure out the breakeven point.
If I had a dollar for every borrower who thought ‘rolling in’ closing costs was a benefit, I’d be rich. A lot of lenders sell that idea to make the fees less obvious. People don’t always know what’s a fee and what’s a prepaid item.
