Should I Refinance My Brand-New Mortgage?

Dear Dr. Don,

I recently borrowed $470,000 to buy my home, and I've financed it with a 30-year mortgage at 4.25% interest. There are 353 months left. Mortgage rates keep dropping, though, and I recently found out I could refinance at 3.5% interest. It would cost me about $8,500 to do so. Should I refinance right away? I plan to keep the house for at least 15 more years.

Thanks,

-- Mike Makeover

Dear Mike, If you can get a loan commitment at 0.75% below your current interest rate, you should jump on the opportunity.

Why do I say that? Reducing your interest expense by 0.75% on $470,000 saves you more than $3,000 in the first year of the loan. Over the full 30 years, you save about $59,186.85 in pretax interest expense. Even over your planning horizon of 15 years, you save $43,083.62 in pretax interest expense while reducing your total payments by $33,515.49. You'd even have a lower outstanding loan balance, even though you borrowed an extra $8,500 as shown in the tables below.

Does refi make financial sense?

Your after-tax savings will be less with the loss of any mortgage interest deductions. But it's still better to refinance, even after just seven months in your existing mortgage, and even with a fairly steep bill for closing costs.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.