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Hello, and welcome to Ask USAA.
My name is Scott Halliwell.
We have a question today from Mark in Virginia, and he wants
to know, should I refinance my current mortgage?
Just to add a little background here, this isn't
your typical refinance scenario that's about someone
trying to take advantage of today's low interest rate
Mark's situation is a little bit different.
That is, he recently retired from the military, but he
still hasn't found meaningful civilian employment.
And as a result, things are starting to get a bit tight
for him financially.
So to help with his monthly cash flow, he's wondering if
he should refinance his current loan
to get a lower payment.
Finally, he shared with me that he only plans to stay in
the home for about five to eight years, at most.
So, Mark, to figure out what you should do here, let's
start by looking at the details of your current loan
and the loan that you've said you've been
offered by your lender.
You said that your current loan interest rate is 5.625%,
that you still owe $410,00, and you have approximately 23
years and 4 months remaining.
On other words, you've been paying for a little
over 6 and 1/2 years.
Now, the new loan you said you've been offered is at
5.2%, but the problem is it's going to push you back out to
a 30 year mortgage and it's going to cost you $7,000 in
So the question is, given these two options, would
refinancing this be a good idea?
I'm going to share with you what I think here in just a
minute, Mark, but before I do, I want to share with you
something that I urge everyone to think about when they're
considering doing a refinance.
And that is this--
it's almost impossible to say for sure what the
right answer is here.
Why that's the case is because even though you can do the
math of each loan and you can compare the numbers to try to
find a winner, doing those calculations involves making a
lot of assumptions.
The challenge is, change any of those primary assumptions
like the interest rate environment, the length of the
time you plan to stay in the home, your employment
situation, et cetera, and you could have what once looked
like a really good decision suddenly look like a bad one.
So even though we can crunch some of the numbers, the
results are only going to be as good as our
assumptions are accurate.
Now, even though that's true, to make a decision you have to
And I think doing some cost comparisons is a
great place to begin.
Now, on this subject I urge you to forget about the rules
of thumb that are out there.
Forget about those blanket statements about when you
You really need to look closely at the numbers of your
And to do that, you're going to need a critical tool for
the calculations called an amortization table.
You're going to need one for the current loan you have as
well as the new loan you're considering.
So what is an amortization table, and
why is it so important?
Well, what it is is it's a table that's going to show you
for each payment you make, how much of your payment is going
towards principal, how much of your payment is going towards
interest expense, and it's also going to show you the
cumulative interest expense at any point in
time in your loan.
Why this is important is that until you see those details,
you really can't make an informed decision about which
you should do.
By the way you can get an amortization table from your
current lender, or there are numerous calculators online
you can use to crunch these numbers.
So what's the right answer in your case, Mark?
Well, I crunched some of the numbers for your situation,
and from what I could see, the interest cost savings of the
new loan you're looking at probably wouldn't be enough to
make up the cost of the refinance
given your time frame.
The bottom line here is there isn't a clear winner in
choosing one path over the other.
And for me, in the absence of a clear winner, I think I'd be
inclined to stick with what you have.
Thanks again for the question.
I hope this explanation of how to approach this and what you
should do has been helpful to you, and I wish you all the
best in finding post-military employment.