Undecided about Whether to Refinance your Home?
As mortgage rates have fallen the past few months, is now the time to refinance? Homeowners who bought in the last couple of years may have some great options available.
Almost all loans now give borrowers the right to prepay their mortgage without penalty. This means you can lower your monthly mortgage costs in the right situation.
If you’re on the fence about refinancing why not let an unbiased financial whiz do the math for you, a refinance calculator.
Step 1: Enter your current loan information into refinance calculator
Input your existing mortgage balance into the online refinance calculator, then the interest rate and the monthly payment for principal and interest. There may also be a field for how many months/years you’ve already paid for the loan.
Step 2: Enter the proposed new loan terms
1. How many years will the new mortgage be for? You can choose to get a 30-year, 20-year or 15-year mortgage. Keep in mind that a new 30-year mortgage will offer the lowest monthly payment.
If you decide later on you can handle a 25, 20 or a 15-year fixed payment, you can add additional money to the monthly payments to lower the principal balance quicker. There is no prepayment penalty.
2. The new mortgage interest rate. If you have a high credit score, you’ll likely qualify for the lowest rates offered by your lender. If your credit score is under 700, don’t expect to get the best refinance interest rate.
3. Closing costs. The calculator will consider the addition of loan fees into the new loan amount you can input zero if you pay it out of pocket. For example, with $5,000 in estimated closing costs being added into the loan, the monthly payment accordingly goes up.
Step 3 Review the proposed results
Once you are finished entering the current and proposed loan information, the refinance calculator will return your results.
Monthly payments. Compare the results between your monthly payment as it is now and the new payment. Compare the payment with loan fees added and a loan without loan expenses.
Interest Paid Over Lifetime. See how much interest will be paid over the remaining term of your current mortgage and the new mortgage.
When it’s Not Advantageous To Refinance a Mortgage
Although a refinance can offer substantial savings you also need to consider
how long you will remain in the home.
If the calculator displays you can save $250 a month, are you able to take advantage of those savings? If you expect to move in the next year or two and it costs you $6,000 to refinance, you may not recoup the money spent.
Most people who refinance do so with a plan to recoup closing costs within two- to- three years from the monthly savings.
STEP 4: Take Advantage of Rates
Refinancing your home is something to seriously consider if you will benefit from one or all of these results; a lower monthly payment, lower interest rate, a reduced loan term, or switching from an ARM to a fixed-rate loan.
Start your refinance if the calculated numbers tell you to do so. If the refinance numbers look good, begin the refinance process now. Rates are low and not many financial experts predicted this drop. Speak with a loan officer to lock-in today’s historically low rates.
