Refinancing? When is it a smart move?

Does refinancing save money? It depends
By BENNY L. KASS • March 29, 2008
I bought my condo 18 months ago. The interest rate on my 30-year loan is 6.25 percent. Should I consider refinancing to a lower rate? I plan on staying here and paying off the loan so it seems even if I save some money on a lower interest rate I will be extending my loan and paying more over the long haul. — Scott
Since you've had your loan for a relatively short time, the costs to refinance your loan may not outweigh the benefits of a lower interest rate.
Let's take this example: Your loan was $300,000.The monthly payment at a 6.25 percent interest rate is $1,847. (This is only for principal and interest; it does not include escrows for taxes and insurance.) If you refinance at 5.75 percent, the new monthly payment will be $1,751, or $96 less per month. You have to do the numbers. Contact your current lender and see if they will agree to allow you to refinance and not charge you all of the settlement costs. Some lenders will be willing to do this.
If not, contact other lenders in your area and compare closing costs. Let's say that they will run approximately $2,500. It will take you 26 months to begin to see the savings on the refinance loan (divide $2,500 by $96).
So in your case, it is a close call. But since you plan to stay in the condominium for a long period of time, it might be worthwhile to refinance.
Here are two suggestions should you decide to go that route: First, instead of paying cash for the closing costs, if you have sufficient equity in your unit, have the lender add those costs to the amount of your new loan. This will not increase your monthly payments very much.
Second, if you can afford it, try to make extra payments each and every month, and specifically advise the lender (when you send in your check) of the amount of these extra payments. If, for example, you make one additional monthly payment every year, you will reduce your 30-year loan down to approximately 22 years.