Can someone explain refinancing to me like I'm a 2 year old?

So, we've been in our house for 4 years under a VA loan.

Wells Fargo has a program through the VA that they will pay your closing costs (for a slightly higher % rate) so that the amount doesn't get rolled into the total of our loan. There is also no appraisal, and no credit check.

It will save us about $385 a month on our mortgage payment per month, but we will have to go back up to a 30 year mortgage. We'll be going down 1.5% in rate, from 5.5% to 4%.

In my head, I'm thinking that sucks bc I'll have 4 more years I'll have to pay off my mortgage, but I understand it will be at a lower amount. It's just 48 more payments (and that total amount) is what is throwing me.

I'm normally smart with finances, but I can't wrap my head around if this is a good idea or not. I feel like I'm blocking out the obvious.

Help!

Can someone explain refinancing to me like I'm a 2 year old?

If you continue to pay the original mortgage payment amount and not the refi payment amount, you will be paying additional money toward the principal. Therefore you can elimate the 4 years that you added back into the length of the loan and save additional money. Plus since you have a lower interest rate with the refi than the original mortgage, more of your payment is going toward principal than interest.
If you pay the additional money every month, just make sure to tell the bank to apply to the principal so that you save the interest money.

I guess I really did not answer your original question, sorry

Re: Can someone explain refinancing to me like I'm a 2 year old?

Can someone explain refinancing to me like I'm a 2 year old?

Refinancing is usually a good option because 1) your monthly costs for the mortgage are lower 2) you end up paying less money as interest overall 3) if you plan to stay in your house for a long time, the closing costs that you will incur to refinance will be made up by the savings in your monthly payment.
Yes, you will have 48more payments but if you looked at the over all interest you pay over the course of the loan-it will be cheaper because of the lower %. And also, very few people stay in the same house and maintain the same mortgage for the next 30yrs! Now is the time to refinance as the interest rates are so low-by the time you are in the market for the next mortgage/refinance the interest rates are likely to be higher.
I am not sure how the VA loans work but I would run the different scenarios in a calculator- bankrate.com has some good ones. I am not sure paying a higher % makes financial sense versus saving the money for the closing cost(usually a couple of 1000$) and then getting a lower rate overall. It def does not make financial sense to roll in the closing costs into a new 30yr loan-because you end up paying interest on it for the next 30yrs. But I understand for some situations that is the only way to take advantage of the refinance offer.
I hope I helped clarify your thinking on this-def try out the calculators. GL!

Re: Can someone explain refinancing to me like I'm a 2 year old?

So I talked to our mortgage guy, and he explained that the 4 years we've been in the house is not included in the numbers he was giving me.

Paying at 5.5% on the remaining balance for 26 years is going to come out to more than paying at 4% on the remaining balance for 30 years.

So I think I'm good.

Re: Can someone explain refinancing to me like I'm a 2 year old?

use the mortgage calculator here :
to calculate the difference between the two rates, and also if you apply extra monies to the principle within the new rate.

Re: Can someone explain refinancing to me like I'm a 2 year old?

Re: Can someone explain refinancing to me like I'm a 2 year old?

Do they have an option to get a shorter term? We refinanced from 30 to 20 yr term, our payments went up slightly but we will save a signifcant amount in interest.

Re: Can someone explain refinancing to me like I'm a 2 year old?