Need Mortgage Refinance Advice

[Ragnar Hogbrok]

Ok, to be honest, I don't really know if I should refinance or not.  Here's the particulars:

Market Value of Home:  $172,000
Amount on first (only) mortgage:  $124,200
Estimated Current Equity:  $47,800
Current Interest Rate:  4.5%
Current Mortgage Payment:  $978
Loan type:  VA
State:  GA

My credit score isn't what it used to be due to closing credit accounts and not using credit to purchase things anymore.  Flawless payment history on all current credit accounts.

I'll be moving out of this house in March and plan on renting this house to a tenant.  Based on the market, I should be able to receive $1200-1400 in monthly rent.

I understand that closing costs and other fees will add to the amount refinanced as I don't have the cash currently to pay for those items.

I'm basically looking for any advice as to whether this makes sense.  If I could get a 3.5% interest rate (a reduction of 1%) and refinance the remaining mortgage, I could use most of the monthly rent received to pay down extra on the house, thus paying it off early and saving even more.  I plan on selling this house in 8-10 years after building more equity through renters.

I'm totally ignorant of the cons of refinancing.  All I hear and read are advertisements saying, "You have nothing to lose!"  I am smart enough to know that's not the case, but I hope someone here could lend me some advice from either personal or professional experience.

Also, any recommendations of refinancing companies/agents would be most welcome.

Thanks in advance.

[HawgWild]

Sounds like you're planning on holding onto the house and not selling it in the near future. Seems like I recall hearing that, generally speaking, it'll take about 4 years to recoup the costs and experience savings but that's really dependent on the interest rate and costs/points charged to re-finance.

Do you know for a fact what your re-finance interest rate would be? If so, that would allow you to run the numbers.

[Ragnar Hogbrok]

Sounds like you're planning on holding onto the house and not selling it in the near future. Seems like I recall hearing that, generally speaking, it'll take about 4 years to recoup the costs and experience savings but that's really dependent on the interest rate and costs/points charged to re-finance.

Do you know for a fact what your re-finance interest rate would be? If so, that would allow you to run the numbers.

No, I don't.  As I said, my credit score isn't in the 800s like it was when I made most purchases with credit.  After 2008, all of my credit lines' available credit were dropped to the current balance throwing my debt to credit available ratio out of whack.  Since then, I have purchased (other than the house) everything with cash as I continue to pay off all credit accounts.

That being said, I can't assume what my rate qualification would be.  I would assume that I potentially could qualify for a 1% reduction (3.5%) and I guess that would pay off in the long term. 

I do plan on paying more than the monthly mortgage payment in order to pay down the principle amount to the tune of approx. $2400-2800 per year (the amount of rent over the mortgage payment, minus rental property expenses).

Does this plan hold water assuming a 30 year 3.5% fixed rate?

[HawgWild]

If your sole purpose is to save money on buying your home and not taking money out for any other projects then I wouldn't refinance with a 30 year loan. Your better rate will be with a 15 year one. You should be able to call around and get a rate quote. Of course it will be contingent upon the appraised value of your home, outstanding balance, credit score, etc. You're not under water so that's good. You should be able to get an idea of your credit score for little or no cost.

Beyond this I'll have to defer to others. The only time I refinanced was when we did an extensive remodel. My home loan went from 12.25% to 10%. Given my experience, I think anything below 8% is a great rate. 

[Ragnar Hogbrok]

Thanks for the input. I'm pretty sure I'm going to hold my cards. I just wanted to see if anyone knew of any reason refinancing in my situation made sense. My goal was to lower monthly payment in order to pay down principle with excess rental income. Maybe my idea doesn't make much sense.