I like to consider myself fairly savvy in terms of being able to analyze a financial situation and make decisions, but I have been thrown by a little bit of a loop when considering refinancing our mortgage. We have a pretty good rate for a 30 year fixed mortgage and the only reason to refinance is to save money. After less than 2 year however interest rates have dropped considerable and we are looking at rates 87.5 basis points lower than our current rate.
It starts to get confusing when pre-paid interest or points get thrown into the mix. We could save 125 basis points by paying one point. This makes sense when you intend to stay in a home for more than 5 years in our case. However intentions aside, I never thought we would be refinancing in less than 2 years from the time of purchase.
Finally, if we went with a 15 year mortgage we could save a full 100 basis points without pre-paid interest. This sounds good and is financially feasible right now. However for 1/8th of 1%, I am a little antsy to be on the hook for an additional $500/month every month. This is a lot of money and in 15 years time a lot can change.
15 years ago the economy was enjoying welcoming Bill Clinton to the White house, we saw the internet boom with huge market returns, the internet bust in 2001 along with the terrorist attacks, then the last 5 years we have seen interest rates at historic lows which led to a housing boom and bust. Flexibility in our financial strategy is well worth sacrificing the money we would save which amounts to a nice dinner out once/month.