Should I refinance on a small mortgage loan?

May 29, 2020 6:31 AM

I have a small mortgage loan left on my rental condo for 47k at 4.25% interest rate and have 6 years remaining on the loan. Should I bother inquiring about refinancing? I've never refinanced it before but now that there's talk about record low interest rates I'm wondering if this is something I should be looking into or if it'll even be beneficial for me.
posted by CheeseAndRice to Work & Money (8 answers total)

You can look into it, and run the numbers. But keep in mind there are costs associated with the re-fi, so those have to be taken into account. These will be in the thousands. It might be worth it if you get a significantly lower rate over a long enough period of time. But for you that is probably not the case.

Use a basic re-fi calculator to see roughly where you are.
posted by pyro979 at 6:44 AM on May 29, 2020 [3 favorites]

What was the original term of the loan? If it was a 30-year, at this point in the amortization table you're paying mostly against the principal. So the amount of interest you're currently paying isn't really that great. In fact, if you can swing an extra payment every year, you're going to probably shave a year off the back end.
posted by scolbath at 6:49 AM on May 29, 2020 [3 favorites]

I was in a similar situation some years ago: a relatively high interest rate on a small remaining mortgage balance which, even adding to every month's payment expressly to lower the loan principal, was getting tiresome. In my case, I had a $50K Home Equity Line of Credit sitting unused that carried a substantially lower interest rate. Running the numbers through a mortgage calculator showed that the HELOC shaved a month off the loan so it was a no-brainer to pay off the mortgage with the HELOC. Plus it got me out of the clutches of the Evil Bank that held the mortgage.
posted by DrGail at 7:32 AM on May 29, 2020 [2 favorites]

Second HELOC or just Home Equity Loan for fixed rate rather than variable rate.
posted by zeikka at 8:01 AM on May 29, 2020 [3 favorites]

I doubt you would even be able to refi a conventional home loan of $45k, at least at very low rates. Most have a floor of $100k.
posted by The_Vegetables at 9:24 AM on May 29, 2020 [1 favorite]

My favorite direct lender, Aimloan, does loans down to $50K. Anything smaller than that and it's not worth the closing costs, which are basically the same no matter the amount of the loan. You still need an appraisal, recording, document preparation, notary, etc. Looks like they would offer 4.125% for minimal closing costs for a 10-year fixed rate. Almost certainly not worth it.
posted by wnissen at 11:08 AM on May 29, 2020

Right now you are paying about $2000 per year in interest. If you can't refinance your loan, you could consider paying a little extra each month to reduce your principal faster. For every extra $100 you pay toward your loan, you save $4.25 in interest each year for the rest of the life of your loan. And your loan will pay off sooner.

Paying extra toward your principal is like an investment earning 4.25%. That's much better than you can earn in any other safe investment right now.

But make sure that you don't leave yourself cash poor right now. You don't want to be caught without a safe cushion if you lose your job in this uncertain economy. And if you have credit card or auto debt at a higher interest rate, pay those down first.
posted by JackFlash at 5:58 PM on May 29, 2020 [2 favorites]

Response by poster: Thank you everyone for your input. To answer someone's question, my loan was a conventional 15 year fixed rate mortgage. I decided that it's not worth refinancing bc of the closing cost. I'd rather use that money to pay towards the principle as others suggested. And bc it's a rental condo, i doubt i'll get super low interest rate as advertised anyways.
posted by CheeseAndRice at 9:57 AM on June 30, 2020