Is refinancing your home mortgage now the right choice for you? Some simple guidelines can help you make the decision.
Choosing your mortgage was one of the most important decisions you’ve made and deciding whether or not to refinance your home mortgage is equally important. Timing is crucial in the decision to refinance your home mortgage and several factors should play a part in your decision process.
When Does it Pay to Refinance My Home Mortgage? Consider Your Break even Point
Weigh the numbers carefully before proceeding to refinance your home mortgage. There are costs associated with the new loan, possibly including fees such as points, title, escrow, appraisal, underwriting and more. For example, if the new mortgage payment saves you $225 per month and your closing fees are $4500, it will take you 20 months to break even. Then you will actually begin to see a savings from your home mortgage refinance.
When Does it Pay to Refinance My Home Mortgage? Consider Your Plans
If you don’t plan to stay in your home for more than a couple more years, it may not be in your best interest to refinance your home mortgage at this time. You probably won’t hit your breakeven point and will derive no benefit from the transaction.
When Does it Pay to Refinance My Home Mortgage? Consider the Interest Rate
If the current interest rate has dropped below your existing interest rate, it may be a good time to refinance your home mortgage. Ideally, the difference between your current rate and the new rate should be .5 percent or more. Review your breakeven point to see if the monthly savings a refinanced loan would generate is worth the expense of obtaining it.
When Does it Pay to Refinance My Home Mortgage? Consider the Length of Your Loan
If your original loan was for 30 years and you’ve been paying on it for seven years, you have 23 years left. Your new mortgage will likely be another 30-year loan meaning you will be paying for another 30 years. This can still be cost-effective but may be something you want to consider before refinancing your home mortgage.
*Affects pricing. With the No Closing Cost
Option, borrowers finance the closing costs instead of paying for them at
closing. Borrowers who pay closing costs at closing may qualify for a lower
interest rate. Some upfront fees (ex. credit report and appraisal) may apply
and may be credited at closing.
*Refinancing or taking out a home equity loan or line of credit may increase
the total number of monthly payments and the total amount paid when compared to
your current situation.
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