DID I DO THE RIGHT THING BY REFINANCING May 5, 2009

The key question is “Did I save money by refinancing?”  If you are able to get a better interest rate and save closing costs (mortgage tax, bank and title fees) does this refinance make financial sense?  It is possible that the cost of the refinancing process can outweigh the monthly savings.  The easiest way is to determine the amount of money you are saving on your mortgage payment by getting the lower rate.  Then look at the total closing costs and divide them by the monthly savings.  This number will tell you how long it will take to recover the closing costs.  Examples

1) Monica had a mortgage of $200,000.00 at 6.25%.  She was able to use a modification with her existing lender HSBC to reduce her interest rate and lower her payment by $140/month.  Her closing costs, (no mortgage tax on modification) to $2300.00 so by dividing the cost ($2300) by the monthly savings ($140) it shows that it will take her 16.5 months to recover her closing costs.  If Monica intends to be in the house for more than 17 months the refinance makes sense.
 
2) Lesley couldn’t do a modification and would have to pay mortgage tax again (1.8% on $200,000 = $3600.) so her closing cost was $5900.00.  Taking the closing cost ($5900) divided by the monthly savings ($140) it would take her 42 months to recover the closing costs.  Her plans were to remain in the home for a long period so the refinance made sense.

3) Sandra would be able to do a modification (like Monica) but her timeframe for remaining in the house was only 12 months.  After discussion she investigated an adjustable rate (ARM) but ultimately decided that since she intended to move that any monthly savings could not justify paying the closing costs.

Steven Decker is a New York Personal Injury attorney specializing in New York real estate law , New York business law, and New York franchise law. You can visit his Law Firm Decker, Decker, Dito and Internicola website by clicking here, download his FREE New York Car Insurance book, or call him at 718-979-4300 or 1-800-310-5520 for a free case analysis.

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