This year has seen record low mortgage rates. While current mortgage rates have risen slightly, they remain at near historic lows. For those who can take advantage of these low rates there is a great opportunity to refinance. How then should a home owner make the decision to refinance?
Calculating the Savings. Calculate the amount of interest you will pay for the remainder of the current mortgage loan, subtracting out any prepayment penalties, if there are any. Subtract from this the interest and fees on the new loan. Consider though if you have been making payments for several years. As an example, the original loan was for a 30 year mortgage and the borrower has made payments for 6 years. With 24 years remaining on the current loan you will have to see a significant difference in the rate to justify going back to a 30 year loan. In fact, in this scenario a 20 year option may be better. Make sure that you don’t include the interest that’s already been paid on the current loan. This has been paid and it is gone.
How long you will live in the home. Once you have determined the savings, figure out how much this is every year. Then calculate how many years you will need to live in the home to recoup the fees you have paid. If you are planning on relocating sooner than you can recoup the fees then refinancing is not a good choice.
Be aware of newer requirements. My good friend, Rick recently passed on to me information regarding new requirements. During the housing bubble brokers and lenders were looking for ways to lower borrower’s payments, by not including the escrow payment, property insurance and taxes. Unfortunately, this was a common practice for subprime loans. The new requirement is that all new loans will include the escrow payment. By including the escrow, the amount of closing fees goes up. This is especially true when approaching the end of the year, as the total amount of the taxes and insurance are collected up front to deposit in the escrow account.
Ask someone who knows. Most importantly is when in doubt, ask. I always ask when I don’t understand something. Even in refinancing I have asked two friends, Bob and Rick, for their thoughts. As they both have ample experience in mortgage lending, they are a great resource for me.
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Comments
I recently did mortgage refinancing and only lowered my interest rate by .5%. I had to get out of my adjustable rate mortgage before it adjusted on me and my payment became unpayable. www.MortgageRefinancing.com laid out all the options for me and I chose which one I liked.
I own a condo and have an outstanding balance of $140k, consisting of $104k primary and $36k secondary. I took the home equity to consolidate debts. At the time the property was valued at $163k but now it is valued at $134k. I'm looking to sell because i am engaged and will be moving into my fiancee's home. www.obamamortgagerelief.org/.If I have a buyer who offers me within say $5-7k of the outstanding, can i agree to assume a loan on the residual and pay the bank the difference over time with interest? The same bank holds both mortgages.
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