Closing Costs Influence Decision To Refinance Office Condominium. If the costs outweigh the savings, refinancing is not the right option.

Q: I listen to you when I come home from church each Sunday. I enjoy your radio show. I have a dilemma that I would appreciate your advice on.

We have an office condo that we bought in almost 10 years ago. We owe about $60,000 on it and have a 15-year original loan at 6.5 percent. So we have about six years left on the loan. Our monthly payment is about $865.

We have a refinance quote from a bank for a $60,000 loan for 84 months at $813 per month at a great rate of 3.74 percent. The total finance charge is about $8,296. The savings to us is $52 per month for 84 months or $4,368 over the term of the loan.

However the closing costs include an origination fee of $300, intangible tax of $180, an attorney fee of $600, appraisal fee of $395 and a flood certification fee of $10, for a total of about $1,485. Is it worth our refinancing or is there a better or lower cost way or should we just pay off the $60,000?

Please give me your professional opinion if you have time.

A: So basically you’re saying that it’s going to cost you about $1,500 to refinance your loan in closing costs to get a monthly benefit of about $52 per month. It will take you about 30 months to even out, or pay off, the costs of the refinance.

If you plan to keep the loan for the next seven years, it seems like a good deal and you should refinance. Due to the low balance on your loan, you don’t get as great a bang for your buck from refinancing and paying the closing and refinance fees.

If your loan balance was twice what it is, you’d pay off the costs of refinancing in about fifteen months. And, if your loan was double that amount, you might be even in about seven months. You can see how the higher the loan balance, the costs to refinance may not increase in the same proportion and you benefit from refinancing faster.

If you are unsure what to do and think you might sell the property in the next couple of years, your next best option would be to apply the $1,500 you otherwise would pay towards closing costs to pay down the amount you owe on the loan. That prepayment will save you some on the interest you’ll pay over the remaining life of the loan, although again, because you don’t have much time left on the loan, it won’t be a significant savings.

It’s your choice what to do on this issue. You probably won’t go wrong either way