Why not speak to your bank or credit union, maybe they have a competitive rate?

Or checkout:

bankrate.com

quickenloan.com

lendingtree.com

Be sure that the interest savings will more than pay for your costs of the refinancing, based upon your estimate of how long it might be before the house is sold. If don't plan to stay for the long term, it may not be worth it.

Did I get the higher interest rate because it was a 30 year morgage(not 10,15 0r 20). Paul

"You got whatever interest rate you negotiated and agreed to. There's plenty of disclosure of that in the papers you signed. "

Exactly- nobody snuck anything by you- you just didn't bother to pay attention to what you signed.

Given your posts in other forums, I think you need to get out all the paperwork you were handed at your closing and review it. Look up any words or phrases you do not understand and try to get a better handle on the whole mortgage situation.
It sounds as if you went into this blind and simply trusted people to get you the best deal
Don't do that.
No one cares as much about your financial future as you do- you must understand what is going on.

Read everything, learn how to research, ask questions to the people sitting in front of you and don't ever sign a paper ever without reading and understanding what is put in front of you.

Refinancing might make great sense, but if you go into that the same way you handled the original mortgage you can get equally screwed yet again.

I don't mean to be harsh but this is the largest financial transaction of your life.
Invest the time to understand it and pay attention to every detail in the process.

I agree with all the constructive criticism, thanks for your honesty. I'm wondering now, after learning we only borrowed 48000 and have already paid for 5 years. Would it be worth while? Paul

What would you do with the constructive criticism you received? Why not get a book start learning and applying what you learned to your own situation? You will use the knowledge for the rest of your life.

Here is a book " Mortgages for Dummies". Don't be turned off by the term "Dummies", I have found this type of books are quite useful as the first reading to a new subject. There are tons other good books if you search Amazon and read reviews of each book.

Here is a link that might be useful: Mortgages for Dummies

Great suggestion azmom.

I love the " For Dummies" series. There are hundreds and hundreds of them that have been published. No matter what the topic, most are very useful. For those who don't like buying and accumulating books, most libraries have a good selection of them available.

I didn't read all the comments...

But, what do you mean "you just learned" about the interest rate? Hello, have you heard of the truth and lending statement? It's required by law. You should have received a copy. It clearly states your interest rate and APR. Which rate is 5.25? Is it the interest rate or APR (Annual percentage rate)? The APR is usually slightly higher because it accounts for the fees and closing costs.

I'm still shaking my head though, no one pulled anything by you. You had to sign many documents I imagine and those documents contain the rates. Did you even ask what the rate was back then? For the life of me I can't understand how you're just now finding out about the rate.

Sorry for being harsh above. There is good news to come. It's good you're finally seeing your rate and asking questions. Assuming your credit is good, you have solid work history, and house is worth enough, you should be able to refinance and save lots of money.

If your part of a local credit union, start with them. If not, find a local bank or mortgage company. Lots of companies have about the same rates, it's all the fees you have to watch for. And we certainly don't want anyone pulling another fast one by you, and with the fees and other bull (points, closing costs, etc) it can certainly happen...

A couple months ago I started looking at my mortgage very closely. I dug through a bunch of paperwork and found the truth and lending statement. This is where I learned my 235k loan would cost me almost 200k in interest alone if I only make the reg payment for 30 years. APR was 5 point something and the interest rate was 4.5. The kicker is my husband had a FHA loan (I didn't even know what that meant) until I learned about PMI. Long story short, we just refinanced and went from a 30 year loan to a 20 year. We locked in at 3.75 and our payment only went up $55 per month. We got rid of PMI and we knocked our mortgage down by about 5-6 years going to a 20 year. It was a no brainer. Plus I pay an extra $400 every month in hopes of paying it off a couple years sooner. I don't know what the future holds of course my goal is to get out of debt asap.

The shorter the mortgage term, the better the rate (as in lower rates). So if you get quoted a 15 year mortgage, the rate will be lower than a 20 or 30 year. But don't let the new low rates fool you - I believe they are FHA or some gov loan that has fees or PMI so while the rate is attractive you'll pay with extra fees. Be sure to try and get a conventional loan only (meaning no FHA loans and no PMI - private mortgage insurance/aka BULL). A conventional loan is one where the home has at least 20% equity(anything less than 20% usually requires PMI, and this is where people go with FHA loans, which is what my husband got a couple years back).

Keep us posted and ask more questions if needed.

Bottom line, when you go to the bank, they are going to want all your info to run your credit. They'll want to know where you work and how long, how much you make, how much debt you have, etc... It can be overwhelming. Just tell them before you release info you want to know what rates they offer and how much the fees are. My local credit union was much cheaper than the big bank and I don't have to worry about my loan getting sold every other month...

I could go on and on...

I just saw this-
"I agree with all the constructive criticism, thanks for your honesty. I'm wondering now, after learning we only borrowed 48000 and have already paid for 5 years. Would it be worth while? Paul"

It could be worth while. What do you owe now?

Once I have the numbers I can tell you how long it would take to break even/catch up assuming you went with the new loan. For me it will take one year for me to catch up (had I kept the old loan) and I plan on staying in the house long term so it was worth while. If you're moving soon then it's almost never wise to refi because you usually add the fees or closing costs into the loan.

If you don't owe much then you can always pay extra toward the principle BUT - MAKE SURE THERE IS NO PREPAYMENT PENATLY.. from the sound of things, I don't know what you got into... But you don't owe much so that's great news.

I would just figure how much difference there would be in the payments and what it would cost to refinance, then decide it if is worth the trouble of refinancing. Your payments are very low I would just leave it as is and not do business with that company again.

Paul-
Because some basic info is lacking, it's hard to tell what happened to you, other than that you were too trusting and expected others to look out for your interests. At least you didn't get stuck with an adjustable rate mortgage or an even higher rate. Maybe your credit rating wasn't as high as you think it is and you got the best rate you could. Or maybe you got gouged a little because you weren't paying enough attention...but reputable banks don't usually do things like that. One thing you could do is make an appointment with a loan officer at that bank and have them explain why you ended up with that interest rate, and whether you could qualify for a better rate now. Maybe there are things you don't know that factored in.

I've played around with the numbers you provided using an online mortgage calculator. A 30 year loan on $48000 at 5.25% does result in a payment of $265, as you mentioned so we are in agreement there. If you had gotten a 4%, 30 year loan instead, the payments would have been about $230, or about $420 per year less. Since you've paid on your current loan for about 5 years, you probably still owe a bit less than $42,000 (you should be able to find the exact amount on your monthly statement or from the bank). Current interest rates are about 4%; if you got a 15 year, 4% loan now on a $42,000 balance your monthly payment would be about $311; or $200 monthly for a 30 year loan. But you need to remember that you have in effect a 25 year loan term remaining with your present loan, so refinancing and getting a new loan adds that many more years onto what you've already paid...in effect that new, 30 year loan actually means a combined period of 35 years when you would be paying a mortgage.

To make a decision on whether to look for a refinance, you have to figure out how long you will live in your present house. Loan costs will probably be a couple of thousand dollars, and the rough rule of thumb is that it takes about 4-5 years before you will break even on what you laid out for the new loan.

Lastly, if you decide it's not worth it to go through the trouble of applying for a new loan, you can always simply increase your monthly payment and pay off the loan in fewer years. If you decide to do that, just make sure you tell the bank in writing that you will be paying an additional monthly amount, and that you want the additional payment to go to principal (otherwise they may simply treat it as an early payment on your regular loan and it won't have the effect you desire). I've included a link below to a simple online mortgage calculator that will let you play around with various percentages and loan terms, and shows the effect of adding additional monthly payments. If you have further thoughts or info, please share them. Good luck.

Bankrate Mortgage Calculator

I am not sure you got screwed, the average rate in 2009 was 5.04 on a 30 year mortgage. There were months as high as 5.42% and many of those had points. Interest rates are lower now than they were.

You will absolutely be better off refinancing, as long as you can get the fees low enough or you stay in the house long enough (which is a fairly short amount of time). Don't bother playing with the numbers on a mortgage calculator, interest is really easy. You can simply calculate your interest expense (which is the cost of using the banks money) and compare it to the closing costs.

At the moment you pay 5.25% since you owe $48,000 that would be 5.25% x $48,000 = $2520, this year. Next year it will go down to 5.25% x $47340 = 2485.35 (the $660 principal you paid is just $265 x 12 - $2520.) Don't overcomplicate it.

If instead you pay 4% (around today's rate) your charge for using the banks money (adding in $1,500 of closing costs) would be 4% x $49,500 = $1980, keeping the same payment your cost will be $1932 the second year.

In this scenario you will more than recoup your closing cost in 3 years after that you will just be better off. Don't get wrapped up in how long you have on your mortgage that is just noise. The only thing that matters is how much you pay the bank to use their money. If you are concerned about paying an extra 5 years then just keep paying what you pay now. You not only avoid the extra 5 years, you will pay the mortgage off earlier than you would have.

bry911-

I disagree on two points. Using a mortgage calculator does not complicate things as it gives the full and accurate amount of the total payment as opposed to your annual simple interest calculation of the interest which is not how the bank computes it. And your comment to not get wrapped up in how long you have on your mortgage reminds me of going to the car dealer and being asked: How big of a payment can you afford? Knowing what your costs are over time and how long you are going to be paying are pretty basic pieces of info that informed homebuyers need to be aware of. What got the OP concerned was what might have happened to him because he wasn't as aware of the details as he should have been when obtaining a mortgage. Making the right choice on a mortgage can be a challenge for anyone, and the OP needs to be better informed, and more willing to dig into the numbers, before he starts shopping for a refi.

Seriously, that is not simple interest, that IS how the bank does it, it is called the effective interest method. The only difference between what I did and what the bank does is that they do the calculation 12 times per year. The actual amount of principal you pay is VERY slightly more because the bank actually uses 5.25%/12*48,000 for the first month, then the second month gets 5.25%/12*47,945. I have taught literally thousands of students how to amortize bonds and installment loans.

The idea that a shorter mortgage is somehow preferable is a very common misunderstanding of the way interest works. The only thing you care about is your cost to use the bank's money. A lower interest rate means the bank is charging you less to use its money. PERIOD! Paying more for the exact same thing is NEVER better. Now you of course, have to hold the payments equal because you are either deciding whether you are better off paying a lower interest rate OR a lower payment not both. You can't really evaluate both at the same time. Nor do you need to.

The flaw in your logic has to do with the idea that your interest is based on the life of the loan, it is not, it is based simply on the amount you owe at the time the payment is received. Thus if less of your payment goes to interest more will go to principal, meaning the next month you will pay more principal and even less interest. There is never ever ever a time where keeping a higher rate on the exact same payment and principal will net you a lower payoff. So the thing you have to figure out is how long before your savings added up to the additional closing costs. After that you are done.

Edit: Effective interest is Principal * interest per period calculated every payment, simple interest is Principal * interest per year * years. To show you the difference his interest of 4% using the effective method is about $25,600, if we used simple interest we would get about 43,000

1. Simple interest vs. effective interest: my point exactly.

2. I understand perfectly that the amount of interest, if it is fixed, is not dependent on the length of the loan. It was never a question in my mind.

3. I also maintain that the length of time one's mortgage runs is important to those who expect to pay off their mortgage at some point.

I understand that you are intending to simplify this discussion, but I'm not convinced that all your points are helpful to this end. You are welcome to your point of view. I'm entitled to try in my own way to help the OP make an informed decision on a possible refi.

1. I didn't use simple interest in my calculation so your point exactly was irrelevant. I also didn't talk about the weather, pineapples, or sweaters, all of which would also be irrelevant.

2. I hope you mean fixed rate, because if the amount of interest is fixed then it is dependent on the life of the loan. But mortgages never fix the amount of interest, just the interest rate.

3. The length of time one's mortgage runs is important, it is just never relevant in an interest rate discussion. I will attempt a different method of explanation. The total amount you pay on any loan is only two things. The first is Principal, which as you know is the amount you actually borrowed. The second is interest, which is what the bank charges you to use its money. So then, Principal + interest = total paid, if this total comes out less, then you always make less payments. There is never a need to consider the length of the mortgage, because a mortgage that you pay less on will ALWAYS be shorter, assuming you are making the same payments.

This is not my opinion, this is simply math. I contend that you are not helping the OP make an informed decision, you are passing along an incomplete understanding. Someone has probably passed that along to you, I don't think you are a bad person. I have argued with you before, and I really hate that you are the person I am engaging in this. At this point you must feel like I am stalking you. I am not, I am attempting to demystify interest for everyone here.

The problem comes in because people wrongly believe, that the question he is asking is, "should I do a 25 year payment of $265 at 5.25%, or a 30 year payment of $200 at 4.0%?" The problem being, that is two questions and only one of them is really relevant to the discussion at hand. If you want to know if an interest rate is better you have to compare different interest rates, not different payments. Since interest is based on time, to compare the two you can ask either of two questions (both of which will give you favorable results in this case.) (1) If I pay for this loan for the same amount of time, by how much will my payment and/or my interest charges be reduced? Or (2) if my payments are the same, by how much will my number of payments and/or interest charges be reduced? The question of whether or not to further reduce your payment is not a question relevant to an interest rate discussion.

I am the Dean of Accounting and Finance at a university and I can assure you, your conclusion is misleading. You may completely understand the math, but you say, "you need to remember that you have in effect a 25 year loan term remaining with your present loan, so refinancing and getting a new loan adds that many more years onto what you've already paid," this is not correct, you will only add time if you only pay 200, but that is not apples to apples. Paying the same $265 you will pay off your new 30 year mortgage in 20 years and 1 month. A full 5 years shorter than your original loan, and that is with $1,500 of closing fees rolled in. Interest fees are that much less.

You also say, "the rough rule of thumb is that it takes about 4-5 years before you will break even on what you laid out for the new loan." There are a lot of no cost refi's out there. In these cases you get a much lower rate but not the best rate. The bank attempts to make its money off the interest rate spread, you usually have to pay for appraisal as new laws make banks unable to. In this case your recoup time goes down to a couple of months. Usually these are .25% higher but there could be a premium on such a small loan.

I do like to argue too much, it is an admitted character flaw. However, I am passionate about financial education, and I spend soo much time frustrated with the way people think about money. Please don't get me started on any kind of time value of money which leads to so many uninformed decisions in homes.

kudzu - reread bry911's comments, then stick to engineering.

bry is correct, the interest rate is the cost and can be closely estimated as rate x loan. There are no rules of thumb, and any suggested are useful only for those who are uninformed and remain so. The term of the mortgage only sets the principal repayment rate, borrowers are always free to repay principal whenever they wish, doing so will shorten the term and the total interest cost.

I'm a retired CPA and Big-4 firm partner.

Snidely-
I've noticed in your comments in various GW forums that you have an unfortunate tendency to inject arrogant and insulting language while responding to posts...not just mine, but many people. Maybe that style has worked for you in your profession, but it's not a very attractive personal characteristic, and it tends to undercut one's credibility.

You made an effort to write a pleasant comment, I did the same to read it. Thanks.

Back to the topic - the "time value of money" topic, like many financial topics, isn't all that tough but it involves understanding a few concepts and a few straight forward calculations. One can't truly understand one without understanding the other and vice versa. Whether or not to do a refi usually can usually be solved with answers to perhaps 4 questions and then mental math.

bry911-
You've been civil, but I feel a need to respond. We keep shooting past one another. We're in heated agreement about how interest works, but I feel like you are trying to convince me about points I already knew and to challenge me on some things I never raised. But to the extent you want to explain for the rest of the folks reading this thread, that's fine.

When I initially posted, I wanted to make a couple of basic points to a person who seemed to have entered into a mortgage without being fully knowledgeable, and could maybe use a some pointers. I was not trying to educate the OP in all the nuances of interest calculations. I made five simple observations:

1. If the OP got a less-than-optimal rate, talking to the bank might clear things up.

2. If the OP gets a new, 30-year mortgage after already paying a mortgage for 5 years, and stays in the house for the length of the loan, it will take 35 years to pay off the mortgage on that house. (Being mortgage-free is important to some people. I did not bother to try to make the obvious point that one can choose shorter term mortgages by opting for bigger payments.)

3. Make sure you will stay in the house long enough to recoup any refi costs.

4. If do not refi, you can still decrease the amount of interest paid and the term of your loan by increasing the payment you make to principal.

5. A mortgage calculator is an easy way to assess options (which I thought might give the OP a more reliable way to assess things than hand calculations) .

These hardly seemed radical concepts, so I was rather taken aback by your responses. In any case, my apologies to the OP who has by now probably been frightened off from dealing with this issue by the blizzard of details in all of our posts here in the last few days.

Ok...I'm done and I'm heading off to some other forums that are more fun!

I hate debt. IMO the best way to handle a mortgage if not planning/intending to sell the property in the short term is pay it off as quickly as possible. Get rid of the debt, and the interest payments.

I've done that twice. First was a 20-year mortgage finished in 127 months. Three years later I sold it and upgraded, which wasn't planned until it suddenly happened. Made a large downpayment of slightly more than 63% (the entire proceeds from the sale plus some savings). 15-year mortgage finished in 8-1/2 years. The feeling of security and freedom from sending that monthly payment is enormously satisfying.

Dadoes

A lot of people feel like you do. I am not one of them. Houses have risk, in fact, a significant amount of risk. There is certainly something to be said for not having a payment, but there is also something to be said for having cash equivalents.

The risk premium on a 15 year mortgage right now is less than 1%, which I, and many financial professionals, argue is lower than the risk premium on a home and is certainly lower than even very conservative investments. That is assuming you take the standard deduction, if you itemize, that risk premium is further lowered and very often goes negative. In other words, you make profit on the spread.

Paying your mortgage off early when rates are this low also negates the inflation benefit of long term fixed payments. My mortgage payment from 30 years ago is about what my car payment is today and that was at one of those still coming down from the Carter years interest rates.

While I understand that not having a house payment on a $100,000 mortgage may be great, so is having $100,000 in the bank. And the $100,000 is fungible where your house isn't.

I mostly agree with you, bry, although if one is expecting significant inflation, it's better to maximize assets and minimize liabilities. Personally, I'm within 5 years of the end of my mortgage and will likely move or refi before then. It's foolish to not take advantage of today's low borrowing rates, even most poor investment choices will provide a profit over the cost of the money.

As far as risk mitigation goes, in my state where the seismic risk is high, there's no better earthquake insurance than a high mortgage balance. Purchase money mortgages are non-recourse, so you can walk away from a totaled house. Though, realistically, that almost never happens.

But the cash or equivalent is an asset. So you can settle your mortgage at any time. Giving you the upsides of low cost of borrowing with the upside of financial flexibility without the downside of too many liabilities.

Ok, I think you're right. Ages ago when studying hyper-inflationary economies, I remember the mantra of the need to hold tangible assets and not cash. But it's true, cash and debt are a natural hedge taken together. But an excess of either is to be avoided then?

I usually tell people to ignore hyperinflation, since hyperinflation turns good farmers into millionaires and millionaires into bad farmers.

IF you haven't done anything yet consider a home equity loan ( if you have a lot of equity). We did that and didn't have to get new title insurance so it saved us $. Or since, your payment is so low just pay a lot of extra principle each month and be done with it quick.

Title insurance, will cost very little, assuming you bought owner insurance when you bought the house then you never need to buy that again. It will indemnify you as long as you own the house. Title insurance on a loan this small will not be very expensive and is included in closing costs.

Do not pay extra at a higher rate. Get out of it. There is no reason to keep a rate that is more than 1% higher than the current rate if you plan on staying in the house more than a few months. If you are not sure you will be in the house for multiple years then do a no cost refi. But most importantly get to a lower rate, then pay extra if you want.

Interest rates will fluctuate on a daily basis (even within the same day). So for a true comparison you need to contact the lenders on the same day. Also make sure to read the fine print on the advertised APR to make sure there are not hidden closing costs. Good luck!

-Chris from ZeneHome