Greetings and happy Sunday!

With mortgage rates dropping, I’m getting asked regularly if now is a good time to refinance. The answer is usually “it depends”. It’s very easy to get caught up in the appeal of reduced monthly payments, but it’s not always the best financial decision. Wondering why? It boils down to two main factors: closing costs and loan amortization schedules.

You probably didn't memorize all the line items at your last mortgage closing, but typically between attorney fees, appraisals, origination fees (which allow you to “buy down” the interest rate by paying points, which is essentially interest in advance), recording fees, title fees, etc. The average closing costs average between 2% to 6% of the loan balance. So on a $500,000 loan, closing costs would fall between $10,000 and $30,000. Usually this is wrapped into the loan balance so you don’t come out of pocket but it is still a very real cost.

The second sneaky thing about a refinance is that it resets the amortization schedule. With loan amortization the beginning of the loan is mostly interest and by the time it’s almost paid off it’s mostly principal. On a 30-year loan a whopping 83% of the first payment is interest, and after 5 years borrowers will have paid 70% of the interest on the total loan amount. So refinancing resets that interest/principal mix. See illustration below:

Using that same $500,000 refinance, if you refinanced the balance of $470,657 after 5 years from 7% to 5%, your payment would go down by about $800- pretty attractive! But when you factor in that $10,000 to $30,000 in closing costs and the fact that total interest paid between the old mortgage and the new one is $330,909 versus $243,128 if the borrower had just kept the old loan it doesn’t look nearly as attractive. That’s $100,000 or more of extra costs to “save” $800 per month!

Of note for those shopping for commercial real estate: this same concept still applies. If possible it's a great idea to find a loan that doesn't balloon too quickly.

This doesn’t mean it’s never a good idea to refinance, it just means you need to be sure it makes sense. In general, refinancing works if:

• You aren’t very far into the loan life- 2 years or so
• You are planning on staying in the home/keeping the loan outstanding more than 5 years
• Your lender can work with you on closing costs (waiving appraisal fees, not pulling title again, etc)
• The difference in interest rates is at least 1%
• The change in monthly payments provides a real relief to cash flow
• Curious if it makes sense for you? Nerd wallet has a handy calculator where you can compare your options

Roth IRA provisions are here for Simple IRAs!

In 2026 a much-anticipated change in Simple IRAs comes to fruition: the ability to do Roth contributions. Right now employers can choose whether to offer a Roth option or not to employees. While this is more work administratively (the match is still pre-tax so the spreadsheet you submit got twice as complicated for employees who opt for the Roth option) it is a nice thing to allow as Roths are more flexible than pre-tax dollars.

Who should go for the Roth option? Remember Roths are good options if you think taxes might go up or expect to be in the same or a higher tax bracket at retirement.

There is one spot where Roth contributions are non-optional- for employees with income of $145,000 the 50+ catch up contributions HAVE to go to a Roth Simple. I anticipate this gets triggered to open a second account once the initial contribution has maxed out. We are still advising clients to do the catch-up Roth deferral as most Simple participants cannot contribute to a Roth at all, so that benefit is a little bit of a silver lining.

Have a wonderful, wonderful rest of your Sunday!

Natalie

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