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[quote=Freeman]It really depends on the amount of the loan, since that determines how much interest you will pay. If you were staying the full 30 years, of course the 3.5% rate would be better in the long term. The only question is whether it would be better to refinance if you end up having to sell in three years. I did some quick numbers, and it looks like the break-even point is around $300k. Basically, I checked to see which would leave you with more equity in the house three years from now, refinancing or simply applying the $2k you would use for closing costs into a one-time payment on your current mortgage. If the loan is less than $300k, then you are better off just paying towards your current mortgage. If it is more than that, you start seeing better returns on refinancing instead.

If you have a decent mortgage broker, they should be able to sit down with you and run specific numbers to tell you exactly what the difference would be three years from now, five years, etc., so you can get a better idea of the long term results of the refinance. That's what I suggest you do, since I'm using several estimates and assumptions that may or may not be accurate.(For instance, if you make more than the minimum loan payment, it will change the break-even point) I wouldn't focus on the actual interest(You aren't really adding interest, since the lower rate will more than cancel out an extra year in the long run). Instead, just focus on the amount of equity you will build up. That's all that will really matter when it comes time to make a decision.[/quote]

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