Looking To Refinance Your Mortgage? You May Be Surprised By The Savings.
Even though the headlines are full of dire stories about the mortgage crisis, the truth of the matter is there’s plenty of money available right now for home refinancing and rates have seldom been better. In fact, you may never find a better time to refinance your home. There are several good reasons to refinance your home. The most obvious is to lower your monthly mortgage payment. Even lowering your interest rate by one half percent can save you a lot of money.
How do you know when refinancing is right for you? Well, there are several things you need to consider. The first question you want to ask yourself is “How long do I plan to live in the house?” If you are planning to sell in less than a year then it may not be a wise move to refinance. However, if you plan to live in your home for at least 5 more years then refinancing may make a lot of sense.
The next question you need to ask is, “How much will my refinance cost me?” Refinancing is not free. Even mortgage lenders who advertise fee-free refinancing are not giving you something for nothing. Fee-free loans usually carry a higher interest rate and there are often incidental expenses such as appraisals that can add up. The point is, before you finalize any deal you need to ask the tough questions. Ask for a list of every fee that you are going to be charged.
Next you need to know precisely how much your new monthly payment will be. Then it becomes a simple matter of doing the math. Let’s say, as an example, that refinancing your home is going to cost you a total of $1,200 out of pocket and that your monthly mortgage payment will be cut by $150. Simply divide the cost of your loan ($1,200 in this example) by your monthly savings ($150 in this case) to arrive at the number of months it will take you to pay for your refinance. In the above example we would divide $1,200 by $150 and get 8. That means it would take 8 months for you to pay off the cost of your refinancing based on the savings you would realize each month.
If you are planning to continue living in the house for at least a couple more years then this could be a very nice savings for you over the long run. And of course your situation may differ. The less you pay in refinancing fees and the greater your monthly savings the less time it takes to break even on the deal and start showing a monthly profit.
One of the big pros when it comes to refinancing is what you plan to do with the money that you are saving every month. Since you were used to paying out that money anyway, one of the best things you could do with the extra money is to pay down other debt, especially credit card debt. The danger here, of course, is that you will immediately run up even greater credit card debt (especially now that you feel $150 a month richer!) and wipe out any advantage you gained through your refinance. Also, if you take out any equity when you refinance with the intention of paying off credit card debt, it is imperative that you cancel all of your credit cards or you may wind up in worse shape than before.
Handled wisely, refinancing your home at today’s rates could be an extremely wise move. Just do the math and make certain that you remove all temptation to go further into credit card debt and wipe out the gains you made through your refinance.
To see how much you could save with a lower rate and to test various scenarios, use a mortgage calculator (good ones are located at mtgprofessor.com). A useful tool is the Tri-Refi calculator, which lets you compare outcomes for the three most typical refinance scenarios: paying costs out of pocket, adding them to the loan balance or incorporating them into the interest rate. To figure how many months it will take you to recover your closing costs, divide the costs by your monthly savings.
Have more questions, or want to speak with a mortgage professional about how to get started? Contact our friends at Iberia Bank Mortgage. 479-695-3709.