Thanks for speaking with me regarding the refinance of your mortgage. I can understand that this is a very important decision and that is why I want to make sure you have all the information you need in order to determine what the best course of action is concerning your mortgage.

One question you raised is: “what if interest rates go down in the future?” Just as we are not able to predict the future of the stock market, there is never a way of predicting the future of rates. While it is best to determine whether you will profit if you move ahead where rates presently stand, it is also beneficial to accomplish an analysis as to what could happen if you wait. Therefore, let’s take a look at the numbers in a hypothetical situation:

Present mortgage: $350,000
Present payment at 7.0%: $2,328 (principal and interest only)
Payment at 5.5%: $2,016 (new loan $355,000 with closing costs financed)
Monthly savings:  $312 (a 13% reduction in payment)
Time to recover closing costs: 16 months ($5,000 divided by $312)

Now, let’s assume two things. Rates do go down to 5.0% and it takes six months for that to happen. How does this change things?

New payment at 5.0%: $1,906 (new mortgage still $355,000)
New monthly savings: $110 additional (total of $422 monthly)
Cost of waiting: $1,872 (six months of savings you will not realize)
Time to recover cost of waiting: 17 months ($1,872 divided by $110)

Therefore, there are three things that could happen if you wait.

1. Rates could increase and you will miss out on $312 of monthly savings completely;
2. Rates could remain the same and if you wait six months, you will lose $1,872 of potential monthly savings;
3. Rates could decrease and you could have a profit two years from now (after six months of waiting and another 17 months of cost recovery).

Let me also add that if you decide to go ahead and rates drop precipitously, you could refinance again at very little cost. While these alternatives do not give you a course of action, I find that it is helpful to analyze what could happen and what the results could be in each situation. Please keep in mind that the rates above are hypothetical examples only. Rates change every day and your rate would be determined when you make a decision to proceed.

I hope this is helpful. Let me know how I can help you determine the best action to take.