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Dear Dr. Don,
We just bought a new home at the end of October. We put 20 percent down, which made our loan amount $388,000. Our interest rate is 6.125 percent. We would like to know when it would benefit us to refinance our home. I would like our total payment to be $2,000 a month. We are currently at $2,753 month.
-- Jennie Juxtaposition
 Dear
Jennie,
To refinance to a monthly mortgage payment of $2,000, you would need some combination of the following things: lower interest rate, longer loan term and additional principal payment.
By the way, by my calculation your monthly loan payment is $2,357.53, assuming that you have a 30-year fixed-rate mortgage.
The difference could be escrow payments for taxes and insurance. You can do your own calculation using Bankrate's
Mortgage payment calculator, but you'll have to round the interest rate to 6.13 percent. Rounding gives you a payment of $2,358.78.
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| 3 ways to lower payment |
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Lower interest rate. |
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Longer loan term. |
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Additional principal payment. |
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You've got a great rate. You're only a few months into your existing mortgage, so unless you take out a 40-year mortgage, refinancing won't do much toward reducing your payment. Putting more money down may be an option. But if you have the money to do it, you had the same option back in October and didn't choose to do so.
Refinancing a first mortgage is an expensive undertaking. Bankrate's annual survey of closing costs reported for 2007 showed total origination and closing costs around $2,736 nationally. Three months into your new mortgage, you shouldn't be looking for another new mortgage.
In general, people refinance when the interest rate on the new loan is low enough to generate a much lower monthly payment, then they look at how long it will take them to recoup the closing costs on the new loan with the lower monthly payment. If and when the time comes, Bankrate's refinancing calculator "Will you save by refinancing your mortgage?" can help you determine that break-even period.
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