More Advice About Refinancing Your Mortgage
The ups and the downs…the ups and the down!
The mortgage rates continue on their typical roller coaster ride over the last few weeks. At one point, we saw lenders at 4.5% on a 30 year fixed rate, then about a week ago the 30 year fixed rate was at 5.5%. What a difference that can make on your mortgage payment!
Some of the best advice you will read about refinancing your mortgage will talk about lowering the interest rate. Yes, low interest rates are what you should focus on, but don’t forget the many factors that should go into figuring out if a refinance benefits your situation.
What to focus on when looking to refinance.
Most of us live our lives month to month. Why? Our bills are due once a month and bills are a major part of our everyday life. Because of this, most people just focus on the new monthly payment the mortgage refinance will give them. There are other things you need to factor into your decision on whether or not you are going to refinance.
Here they are:
The amount of interest you will be saving over the life of the loan.
It’s a beautiful thing to be able to save $100 dollars a month on your mortgage payment. That’s $1200 per year! That’s a pretty nice savings. Now, the amount of interest you will save over that first year will be in the thousands! Tens of thousands over the many years you will have the loan.
Here is a good example of how much interest you can save with a refinance.
The amount of years you could reduce from the mortgage term.
This is something most people don’t even realize when they go to refinance their mortgage loan. Some lenders will be able to put you in a 25 or 20 year mortgage loan and the interest rate is about the same.
For example, on a 150k mortgage at 5.5% on a 30 year, the payment would be $1135.58 (just principal and interest). On a 25 year loan with the same terms, the payment is $1228.17. That difference is only $92.59 per month!
Most of us won’t even consider refinancing the mortgage without saving $100 per month, so if you don’t need the savings, then reduce your term by 5 years. You’ll be 5 years closer to the American Dream…owning a home free and clear!
The amount of closing costs vs the interest rate.
Most lenders will be able to offer you higher closing costs for a lower interest rate. Sometimes you can take a higher rate in exchange for lower closing costs. You should take the time to look into paying more costs for a lower interest rate.
If you have some equity in your home, you can even include those extra costs into the loan, so you don’t have to come out of pocket for those extra costs. Take the time to figure out the amount of interest you will be saving, because if you are going to be in the home for the next 10 years or more, it could make a lot of sense to pay for a lower interest rate. Here is a post that goes over an example on the amount of interest saved with a lower interest rate.
When looking at refinancing your mortgage, keep in mind that there are multiple factors when looking at the benefits of your refinance.
Don’t forget to check your credit report before applying for the refinance!
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