When is It a Good Idea to Pay Money to Refinance?

by Cory Kessenich on August 14, 2013 · 0 comments

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Thankfully, the economy is showing signs of recovery. More people have found stable employment and news from the housing market is encouraging. However, the mortgage rates are still incredibly low and some people are still on the fence about refinancing. People that have the ability to pay down their mortgage in order to get a really good rate are wondering if it is a good idea. Here is a simple example, with lots of numbers, to help you understand when it is a good time to use your own money to pay in to a refinance.


Current Mortgage

Proposed Refinance

Interest Rate




30 year fixed

25 year fixed

Loan amount



Home Value






Amount to pay


In this example we are assuming that the homeowner has lived in the home for 5 years, thus the reason for the new 25 year fixed term.

As you can see, the new payment is lower than the old loan by $267.31 per month. Seems like a small amount considering the $30,000 that was paid out to get the loan down to 80% of loan to value. However, let’s now compare the total payout of the two different loans

  Current Mortgage Proposed Refinance
Payment $1,378.97 $1,111.66
Remaining Years of Payments 25 25
Total of payments $413,691 $333,498
Plus money paid in for refinance -0- $30,000
Grand Totals $413,691 $363,498
Difference $50,193

As you can see, paying down the mortgage by $30,000 resulted in $50,193 less payments. That is a 167.31% return on the money. Not too shabby!

Each situation is different. However, generally speaking, if the new interest rate is at least 1% lower and the term is the same or lower, then the total payback will be substantially lower.

Many online mortgage calculators will help you crunch these numbers with all kinds of scenarios. You simply need the accurate data about your existing mortgage and a solid interest rate quote on the new loan. From there you can see how much you can save by paying money in to the refinance.

For additional program information see our refinance page on our site or to see if you qualify, contact me below or apply online.

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