Refinance riddle - $200/month in savings not enough?

[Gregory Coppola]

I'm currently house-hacking a triplex in Philadelphia. I want to refinance to a lower rate, and thus lower my monthly mortgage payments. The loan officer is telling me financially it doesn't make sense for me to refinance because I'd only be saving $200/month (that sounds great to me), and when he includes closing costs/FHA fees it would take 69 months for me to recoup the money I'd be spending on closing. I tried to explain that I'd be saving $70k over the life of the 30 year mortgage, but he rebutted in saying the government states it doesn't make sense to refinance unless you can recoup the closing costs in 48 months or less. I simply don't understand this logic, and he did a poor job at explaining to me (he then began to get frustrated and lose his patience when I asked him to explain the logic behind it). Because the way I see it, by lowering my monthly mortgage payment I'm able to increase cash flow. Am I missing something? I was hoping someone could possibly shed some light on this.

Just to be clear, he told me he would put the loan through and go forward with an appraisal at my request, but he doesn't recommend I do so. 

Thanks guys!

[Joe Villeneuve]

Originally posted by @Gregory Coppola:

Originally posted by @Joe Villeneuve:

Originally posted by @Gregory Coppola:

I plan to have the house for 10+ years. But no, closing costs won't be out of pocket, they're tied in to the mortgage. 

 So wait, there's nothing out of pocket at this closing, and you're getting $200/month higher cash flow?  If that's the case, then your mortgage broker is nuts.  Since the cost of the closing is in the mortgage, and the cost of the mortgage is $200 less per month, there is no recovery time.

And here I was thinking I'M the nuts one.....

You still might be,...but you're right about this one.  LOL

It's not about how much something  costs, as much as how it's paid for.  In this case, since both the savings and the "paid for" are included in the mortgage payment.  If the increase in the mortgage payment due to this refi is less than the decrease gained in the mortgage payment, then you would be losing money if you didn't do this.

If the cost of the refi (fees, c.c.,etc...) comes out of pocket up front, then you would have to calculate how long it took you to recover it from the net savings gained from the reduced mortgage payment,...and the broker would be correct.