Don’t refi for the wrong reasons

Breakeven period should take no more than 4-5 years

Learn the New Luxury Playbook at Luxury Connect | October 18-19 at the Beverly Hills Hotel

In a recent article on lifestyle mistakes by mortgage borrowers, I gave an example of such a mistake that touched a nerve on the part of some readers. I said in the article that many borrowers would find irresistible the deal I labeled a mistake, and I was right. Some readers did find the deal I described as irresistible, and were completely convinced that I was wrong in saying that it was a loser. The borrower in my example had a 6 percent loan with a $200,000 balance and 10 years to go. She is offered a 5.75 percent refinance for 30 years that will reduce her monthly payment from $2,220 to $1,267. Although the borrower was not required to put up any cash, upfront charges amounting to $17,000 had to be financed -- that is, included in the loan amount. The readers who said that this deal would have been irresistible to them focused on payment savings and ignored or understated changes in the borrower's loan balance. They are payment-myopic, which is a pervasive malady amon...