How Often Should You Refinance Your Primary Home Mortgage?

Box Of Mortgage PapersBecause I have several properties (primary, rental, vacation/rental, vacation), people ask me all the time how often they should refinance their mortgage.  My answer is always, “As many times as it takes to save you money!

I’ve refinanced my primary mortgage four times in seven years and I won’t stop as long as rates keep going lower.  The Federal Reserve has conducted so much monetary easing over the past 10 years that everybody with a mortgage should have refinanced at least a couple times!

In the fall of 2012, I refinanced my jumbo 5/1 ARM at 3.625% down to 3.125% with no fees or cash outlay.  It took about 70 days, but it was well worth it because I only had two years left before my fixed rate expired.  My interest payments went down by a several hundred bucks.

I thought I was set for another five years until I checked again at the end of January, 2012 when the 10-year yield dropped to 1.85% from 2%.  To my surprise, I discovered I could refinance AGAIN just 5 months later. This time, at a rate of only 2.625% for 5 years!  Banks began lending again, sacrificing margins for market share.

Although my mortgage refinance took around 100 days to complete, I’m now so thankful that it’s done because I no longer have a W2 paycheck, making it brutally difficult to ever refinance or get a mortgage again!  By taking action, I’m able to save around $20,000 in interest expense over the next five years.

It’s now May of 2014 and I’m in the process of refinancing my mortgage again and getting a new one because I’m buying a new property in Golden Gate Heights in San Francisco. Despite the 10-year yield rising to around 2.6%, mortgage rates have stayed flat to come down because margins have also come down. This is GREAT for consumers.

THE BIGGEST DETERRANTS TO REFINANCING A MORTGAGE: KNOWLEDGEFEAR AND LAZINESS

The entire mortgage refinance process seems daunting for the inexperienced.  I have many friends who are eligible to refinance and happy to pay their 5.5% 30-year fixed rate mortgage they took out five years ago because they don’t know where to start!  They are crazy for leaving so much money on the table because 30-year fixed rate conforming mortgages are now at 3.75% or below!  By refinancing down to 3.75% from 5.5%, they would save $8,750 a year in interest expense on a $500,000 mortgage.

I finally got one of my friends to join me to refinance their mortgage this past Spring.  However, instead of going with my guy at Citibank, he went with LendingTree.  At the time, I had no idea what LendingTree was because I had always focused on refinancing with the traditional banks in Bank of America and Citibank.  I thought LendingTree was just a finance software company, and I wanted to see the eyes of my mortgage officer and shake his hand so he wouldn’t screw me.

Because LendingTree is an online company, they do not have the overhead costs that the traditional bricks and mortar banks have. As a result, they are able to pass along some of their savings to their clients and find the best mortgage rates for you given their massive network. My friend was able to match my rate of 2.625%, get a small credit, and do everything online. He felt comfortable with the process so I wished him good luck.

On the 58th day of my 100 day mortgage refinance saga, my friend informed me his loan had closed!  His mortgage refinance with a LendingTree loan closed a full month before mine did and I was getting annoyed as hell because I was going bonkers waiting so long for my guys to get done.  Of course there was this whole PG&E utility bill fiasco that delayed my closing by another 10 days in the end as well.

Pretty soon, several other colleagues and friends started mentioning LendingTree with rates even lower than what I was getting.  I always thought I was special, getting the lowest rate with Citibank since I have a 11 year relationship with them.  I’ve also got several hundreds thousands in savings with them as well. LendingTree not only matched the rates I received, they referred a lender that closed in a shorter time period.  Of course each case will be different, but based on what I’ve seen, the bricks and mortars banks are in for a lot of competition.

If you haven’t checked the latest mortgage rates in the past 6 months, I highly suggest you at least get a mortgage rate quote online or offline.  I’m pretty sure rates will be much lower than what you’ve got now.

MORTGAGE RATES HAVE BEEN ON A 30 YEAR PATH DOWN

Mortgage Rate Historical Chart

ONLINE COMPANIES ARE MAKING A POSITIVE DIFFERENCE 

The hesitancy with dealing with online companies is fading and that’s great for consumers.  For example, I have never met my USAA bank representative in person, yet I’ve opened up three CDs with them because their rates at the time were so much higher than everybody else thanks again to lower overhead costs.

For future mortgage refinances, I’m going to always at least check with online companies before making a move.  It’s the same concept as checking out a product’s price on Amazon for the lowest rate, checking out the product in real life, and then going back online to buy the product!

If you haven’t refinanced your mortgage in the past year, you need to at least check the latest real rates to see where you stand. With the 10-year yield now at 1.5%, 30-year conforming fixed mortgage rates are now 3.56% and conforming 5/1 ARMs are down to 2.5%!  If you want to go really short-end, you can borrow like Mark Zuckerberg and do a 1-month LIBOR floating rate under 1.25%.  

Recommendations:

Shop around for a mortgage. LendingTree Mortgage offers some of the lowest refinance and new mortgage rates because they have a huge network of lenders to provide mortgage loans, home equity loans, and home equity lines of credit. If you’re looking to buy a new home, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.

Check Your Credit Score: Take a moment to check your free credit score through GoFreeCredit.com, a company I trust. Over 30% of credit reports have errors which can really bring down your borrowing capabilities. I once had a $8 missed utility bill payment which crushed my credit score by over 100 points! Save yourself some serious mortgage hassle and delay by knowing what your credit score is beforehand. Don’t waste your time by applying for a mortgage without knowing your credit score first.

Updated: 5/10/2014

Photo: My box of mortgage refinance papers over the years. SD.

Regards,

Sam

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. myself says

    Kinda makes me want to refi to a 5/1 ARM and payoff debt completely within the first 2 years. Then keep building up savings to more than cover the ARM payment. After all, if we did that, our primary mortgage would be less than half the amount that it is today. Although I must say that it can be a fleeting sense of happiness if we’re stuck in the case of the arm adjusting and rates have gone up. :-)
    I’d imagine it depends upon one’s own comfort level with an ARM then.

  2. Lance @ Money Life and More says

    I considered refinancing as my current 30 year loan is at 4.625% but my mortgage is well below $100,000 so the costs make it prohibitive. I’d only save a few dollars a month and the closing costs would be outrageous. This is great for people with much larger balances on their mortgages.

    • Elle says

      Yep Lance looking at the cost of the refinances on our mortgage ($105k) was one factor we were looking at. Just this week I noticed that the numbers may work in our favor, so we’re going to check out what the lenders can offer us.

    • Financial Samurai says

      It is the irony of having a smaller mortgage… less wiggle room for the bank to profit from you. If you borrow $1 million bucks, it’s easy to do a “no cost, “no cash” mortgage refinance b/c the absolute profit, even on a small spread is big enough.

  3. Elle says

    Great post Sam; they give me food for thought at times. I know when I shared my last net worth review you mentioned refinancing the mortgage.

    I had mentioned looking at the break even point for the mortgage as one factor (based on the rates in our area). Talking it over together, we’ve decided to call the mortgage specialist this morning to get a recent quote as the numbers are JUST looking right for us.

    Please wish us well; I hope to use the money saved to take care of our other financial goals.

    • Financial Samurai says

      Good stuff Elle. Yes, at least check what the rates are. So many folks who have mortgages from 12months+ ago don’t even bother to check. If I didn’t call my bank to check in January, I wouldn’t be saving several hundred dollars an interest now. It is especially helpful given I’m not working the corporate job anymore.

      After you check with your bank on the phone, please check online. It’s the same thing with checking online to buy a product after you see it in the store. More often than not, online beats!

  4. Holly@Clubthrifty.com says

    We refinanced our house into a 15 year at 3.25…and we are making almost triple payments at this point. We also have two rental properties that we were able to refinance into 15 year mortgages at less than 4%.

    Now is the perfect time to do it and between the three loans we refinanced we are saving literally hundreds of thousands of dollars! Also, we cut some serious years off of the loans. For our rentals, that means additional years of passive income!

    • Financial Samurai says

      Triple payments on a 15 year mortgage! That is juicy!

      Were your rental prop refis recent? I ask b/c I refinanced my conforming rental loan last fall when I did my primary home refinance to 3.375%. It’s a 5/1 ARM though. I think I can get it down to 2.875%-3%, but the loan is so small now.

      That said, I’m checking online right now!

      Got to love your rental passive income!

      • Holly@Clubthrifty.com says

        We refinanced both of them within the past year…but we did 15 year fixed loans. We make very little money on them right now but once they are paid off it’s gonna be sweet! Just in time for my kids to go to college = )

        One of them I refinanced with Quicken and I have to say it was one of the easiest things I have ever done. They even did the loan closing at my house. It was awesome.

  5. 20's Finances says

    I think online business is good for the market overall. The low overhead will hopefully continue to drive down prices for the customer and not pad the wallets of the online company ceo’s. ;) It’ll be interesting to see how it influences the market in the years to come. Regarding refinancing, are you concerned that your interest rate might jump after the 5 year lock? Especially now that you don’t have a dayjob income? Or will you just pay it off if it comes to that?

    • Financial Samurai says

      I’ve been borrowing on the short end of the curve (1 month LIBOR, 1 year, 3 year, and 5 year fixed) for the past 10 years and plan to continue to do so because I do not think rates are going significantly higher in the next 10 years. I have the cash to pay off my primary home mortgage today, but want the tax shield given I’m in a high tax bracket still for at least several more years due to my negotiated severance.

      A lot of people have been paying too much interest for way too long by borrowing at the long end. http://www.financialsamurai.com/2012/05/02/30-year-fixed-mortgage-loan-vs-adjustable-rate-mortgage-arm-the-choice-is-obvious/

      I’m trying to change that, but it’s hard to educate folks about something so big wrt their personal finances. At least people should be refinancing now if they haven’t in the past 12 months.

  6. Dave Schmid says

    We’re doing our 3rd Refi in five years – first a 10/1 ARM to get us started, then a 20 year fixed to lock down a really good interest rate, and now a 15 year fixed at 3% to get us on board with paying off our mortgage before our son hits college (and potentially have us retired early!) Now saving tens of thousands of dollars on interest payments is fantastic. And since we’re not rolling forward any costs and using credits to pay out closing costs – we’re not exposed to any real costs for the Refi. We’re looking at closing in less than 45 days but it’s a brick and mortar mortgage company that we have had a great relationship with. I’m okay with giving up an 1/8 point for a no-cost mortgage. The ROI for giving up a little slice of profit is close about 2 payments over 15 years.

  7. Money Beagle says

    I had a 30-year mortgage around 6% and I didn’t think I was eligible to re-finance because I knew we didn’t have 20% equity iin the house and I thought I’d be forced to start paying PMI. Still, when rates fell around 3.25% last year for a fifteen year, I contacted my mortgage company anyways and they said that for re-fis they didn’t make you start paying PMI if you were a current customer and qualified for everything else. Might have had something to do with HARP. Not sure. Either way it sailed through in around 60 days and we are saving a bundle. It’d have to go down to about 2.5% before I’d consider opening the books again.

  8. Mr. Everyday Dollar says

    My biggest deterrant to refinancing my mortgage was laziness, because yes, it is a lot of work. I am glad I got it done a few months ago because I was able to refinance from a 30 year at 5.63% to a 15 year at 3.25%.

    Can someone tell me how they get a refinance done without incurring any closing costs?

    • Eric says

      From one of Samurai’s responses above, it looks like you might need to have a relatively high mortgage balance in order to benefit from no cost refi. I thought I had scored at the bottom by taking a 15 year at 3.75% almost two years ago. And yes I could refi a little lower now but I only have a remaining balance of $150k so it would cost too much. Plus I’m almost 2 years into this loan.

      • Catie says

        I have been typically refinancing about every 3 years. The last 4 times has been with a no closing cost loan (I only paid closing cost on the first 2 refi). Ya gotta love those credit unions. I am currently planning on doing this one last time to drop another couple of years off the life of the loan next year. I have to wait 3 years between each refi or the credit union wants some of the closing cost back…. go figure. So next year I drop to a 10 year note, roll all the additional payment savings into principal payments and look to pay off my house a few years early.

  9. Quest says

    Thanks for today’s post! It came along at just the right time, as I have been struggling to even get the refinance paperwork off the ground with Wells Fargo. Between my designated loan officer going off on vacation, disappearing off the radar or just plain dragging his feet in filling out a few numbers for a good faith estimate and emailing me a .pdf, I have been waiting THREE WEEKS to even receive a gfe and I don’t have it YET even though he emailed me hours ago to tell me he was ‘working on it’………

    So, I filled out a loan application with Quicken Loans and not even THREE HOURS LATER, I have a loan officer, a tentative loan approval and a user name/password for QL’s website on which is an itemized list of all the documents they need from me and the means to not only e-sign them but to also upload every other piece of info they need back from me. That’s amazing. The loan guy has assured me that he is actively seeking approval from the lender right now. I have already paid a $400 good faith deposit, received a credit report and, all in all, I am super impressed by the speed and efficiency of Quicken Loans. I don’t think it gets much better than this, honestly.

    I’m going for a 3.75% 30 year fixed loan, considering our individual situation. Was thinking about a 5/1 ARM but, given our local economy, I want to be able to afford to stay put should we experience another job loss. If we lose a job, we won’t lose the house with this loan.

  10. Mike says

    I’m waiting a bit until my wife and I are back into our house long enough to do a VA streamline to cut out most of the refinancing costs. We’re also going to go to 15 years on the loan.

    • DebtsnTaxes says

      We just refied into a VA loan. Do you know how long it takes to do the streamline refi? If I remember right it was 12 months of on-time payments and then you are eligible. I’m not sure if rates will be going any lower to make it worth it, but it would be awesome if they did.

      • Mike says

        I’m not sure on the time length. Our biggest issue is that you have to physically live in the house to do the streamline and since we PCS’d, we had to make it a rental property. Once the current tenants move out, we’re back in long enough to do the streamline! If you just re-fi’d you are right that you are probably at the lowest rate you’ll get for awhile!

        • Financial Samurai says

          Yes, refing while living in your own home is easier. I did that for my primary, and my rental prior. I have a plan to sell my primary, bank the tax free gains, move back into my rental for two years, and bank those tax free gains as well after refinancing.

  11. Timothy Mobley says

    This is an excellent post. I completely agree – low interest rates and the ability to refi are definitely the “upside” of the current economic environment. I am working on a new post for my blog (timothymobley.wordpress.com/)which will discuss ways to take advantage of the sluggish economy and if it is all right with you, I’d like to include a link to this blog post.
    Thanks!

  12. Julie @ Freedom 48 says

    I agree – it’s always worth it to refinance so long as you’re saving money! Since you can calculate your exact cost for breaking a mortgage early… AND you can calculate your exact savings by switching to the new mortgage, then it’s always just a matter of crunching the numbers to see if it’s worth it. I think a lot of people are afraid to make a change… or can’t be bothered?

    • Financial Samurai says

      Kind of weird if someone can’t be bothered, since often times it is free money. I guess b/c my mortgage rate is large from an absolute amount, I am always motivated to get the lowest rate possible. It’s the best way to take advantage of Ben Bernanke’s policies, since my CD and savings rates are also plummeting.

  13. Busy Exec says

    Just refinanced a bit over a month ago. Process was amazingly easy and fast. 3.6% is amazing on 30 yr fixed. Another argument for not paying off ones mortgage. It’s the only debt I have and and i’m confident that i can i can beat that in return over next 30years.

  14. retirebyforty says

    I refinanced last year and probably will need to check the rate again. I think it’s best to refi as long as it save money too. Quicken loan is fast, but their fee is a bit higher than usual. If you can get no fee financing at your bank, I’d go for that.

    • Financial Samurai says

      Joe, definitely check if your last refi was a year ago! Mine was last fall, and then this Spring, and I just check again and my rate for my rental is 0.125% lower. Not low enough yet for me to bother, but it’s getting there. For Quicken, I suggest talking to someone and making them wave any fees if the loan does not proceed.

  15. Debt and the Girl says

    This is something that I really need to get on top of. The current interest rates are too tempting to pass up. I have heard the paperwork is massive, though. I am not a fan of waiting either or closing costs. Still, the current market trends don’t seem to want to make me ignore them.

    • Financial Samurai says

      If you have a mortgage, still have a good LTV, and haven’t refinanced in 6 months, at least find out online, e-mail, or call. Whichever method, just find out. I e-mailed my banker this morning, and she said my rental refi for a 5/1 is still at 3.25% as the best she can do. Since I’m at 3.375%, I’ll pass for now. But, now that I know I’m in the “green”, when the 10-year ticks down another 0.125%, I’m checking again.

  16. Untemplater says

    I’ve heard of Quicken but have never used them myself. There dedinitely are a lot of advantages to these online based businesses. Ally bank is another one that a lot of people love and I know their CD rates are usually some of the highest out there. That’s awesome you’ve refinanced so many times!

    • Holly@Clubthrifty.com says

      We refinanced one of our rental properties with Quicken Loans. It was easy and painless…done all through email. You just have to scan your documents and upload them through their online system. They will even come to your house to do the closing.

      • Financial Samurai says

        Good stuff. Can you talk more about the application fee and their policy on reimbursement? I make SURE when I talk to all mortgage refinance officers and banks that I am reimbursed for my application fee if the mortgage does not go through as promised for whatever reason, or the fee is credited to my account. It always happens b/c fortunately or unfortunately, I have a large primary mortgage.

  17. Jacob @ iheartbudgets says

    Haven’t refi’d due to our house being underwater and we’re paying PMI. From what I’ve been told by some companies I’ve called, they can’t do much. I did apply for hardship rate reduction (HARP, I believe) through my current lender (as my wife does not have a job now), but I have TONS of paperwork to fill out. I’ll let you know how that goes.

    • Financial Samurai says

      OK, good luck Jacob! Your situation is different b/c of the high LTV. For those who have 80% LTV or lower, please check the latest rates if not within the past 6 months.

      It’s good you are taking ACTION Jacob. That really is the most important thing. Paperwork is a pain, but if it saves you thousands after even 10 hours of paperwork, isn’t it worth it?

      • Jacob @ iheartbudgets says

        Absolutely. It hits on your third point, that laziness accounts for thousands of lost dollars to the consumer. Rates are crazy low, and people who don’t ReFi because of the paperwork involved are really losing out. Sounds like Quicken Loans takes a bit of the hassle out of it, though, so no more excuses :)

        • Financial Samurai says

          Yeah, I think all online companies are helping take out the hassle. I opened up three huge CDs with USAA, with each one taking me around 5-6 minutes each. Thank goodness I took action when the rates were at 3.5%-4% a couple years ago! It’s a wonderful income stream.

  18. Eddie says

    This is something I’ve been considering.
    My mortgage renewal is in two years (2014), and even though I’m happy with my rate (3.25%), I’ve been considering moving to variable. From what I hear, I’d be able to get 2.5%, something that I’m going to start looking into as they’re not expect to raise the rates here in Canada at least until spring 2013.

  19. Evan says

    I am 5 years into an 5.875% – killing me to read the post and comments! I tried to refinance and the fees made the cross over period longer than I will be in the home for (and I am not allowed to rent it).

  20. Financial Advice for Young Professionals says

    Quicken is a good company but they definitely don’t have the lowest rates! I refi’d with Quicken then with Amerisave and they were about .5% lower. I’m currently at a 3.125% 7/1 ARM :) Not bad for a condo.

    Penfed and home box loans are also pretty good choices. Penfed has a 2% home equity loan that you may be interested in..

  21. Miss T @ Prairie EcoThrifter says

    I would agree. If you can save money than do it. We are looking at refinancing right now since interest rates are still really good. We want to pay as little interest as we can for as long as we can. We are also looking at building on an addition which the low interest rates will make it more affordable.

  22. Rog says

    I have refinance about 8 times in the past 15 years. Each time I take out a new 30 year fixed loan. This week, I lowered my rate to 3.625%. My mortgage broker gave me $3,800 towards closing costs. Since the closing costs were about $1,800 (not counting taxes and insurance escrow), they essentially paid me to refinance.

    My only question: Had I never refinanced, then I would be 15 years into a 30 year mortgage, and I would have a lot more equity. Alternatively, had I refinanced, but kept paying the same amount as before, I’d even have more equity. Instead, whenever I refinance, I start paying the new, lower monthly payment.

    So, now I have a new mortgage, but less equity than I could have had.

    I’m beginning to think that I should have been paying off my house faster.

    What do you think?

    • Financial Samurai says

      Not sure. I’ve always made extra payments to my principal every year so that I don’t extend the amortization period. But, two of my refinances were with the same bank and they just fixed for another five years with the same amortization schedule. They didn’t sell the mortgage to the secondary market so that’s why they could do this.

      Why not just throw a chunk of cash at principal now?

  23. Darwin's Money says

    I agree w as many times as it takes as long as the NPV supports it. Some people pass on a refi when they should do it bc of “sunk costs” or guilt that they just spent the money. But if the future savings offset your closing costs (or just do a no-cost refi), then there’s no reason not to.

  24. Austin says

    I also agree with as ““As many times as it takes to save you money!”” but also I agree with Darwin’s point of the future savings offsetting closing costs.

    I am going to share this article with my clients. Thank you.

    Austin.

  25. Alex says

    The big thing to remember here is that in a refinance situation the bank or lender is in it to make money and the consumer is in it to save money. Period! So where is the line drawn between the two parties and who is the referee? What makes this sort of dealing a fair fight? The answer is an experienced professional that knows the laws inside and out. This sort of representation will be any consumers ace in the whole to ensure that they are getting exactly what they signed up for. My advice here is to never go at something like this alone!

  26. Daniel says

    Good article. You had no cash outlay when you refinanced but there were closing costs that were added into the loan right? How much?

    I am looking into a refinance on a rental property and closing costs on a $210,000 loan are about $6,000.

    You mentioned somewhere that you recommend payback on costs in a year or less. This definitely won’t. Only going down .75% but should get a large amount of cash out.

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