Refinancing your home’s mortgage is becoming more and more prevalent. Interest rates are the lowest they’ve ever been. I have to admit, even though we’ve got a decent interest rate, I have been thinking about refinancing our home. Moving our mortgage to a new loan with a lower interest rate could make our monthly payment lower or even allow us to pay our mortgage off faster. That’s certainly something to consider.
So, how do you know when you should refinance your mortgage? There are a lot of factors to think about and the answer isn’t always easy to determine. While a refinance might be perfect for one family, another family might be better off by staying in their current mortgage.
The answer, simply put, is that you should refinance when you can recoup the costs of refinancing within the time you expect to remain in the house. That sounds like a lot of lingo, though, doesn’t it? What does that mean? Let’s put in a few round numbers and break it down.
Let’s say that you speak to a mortgage broker and find out that you can refinance your mortgage to save $150 each month on interest payments. But, you’re going to spend $3,000 in closing costs to complete the refinancing. By dividing $3,000 by $150, you can see that it will take 20 payments (or months) to break even on your refinancing. As long as you’re going to be living in your home for more than 20 months, then, refinancing could be a good idea for you.
Bear in mind that some situations will override this basic calculation. For instance, the falling home values across the country may cause some of you to find that your equity position has changed. While you may not be paying private mortgage insurance (PMI) premiums now, the new appraisal that is usually required when you refinance your mortgage may reveal that your home’s value has dropped. Now your mortgage amount may be greater than 80% of your home’s value. In these cases, you’d be better off to keep your old mortgage and save those PMI premiums.
Related Posts Related Websites
- Learning About Arizona Home Mortgage Loan Rates by Matthew Sanz When looking for the best Arizona home...
- How to Quick-Turn A Short Sale For $10,000 I know everyone has heard all of this talk about...
1 response so far ↓
1 Money Beagle // Apr 23, 2009 at 2:48 pm
The situation with the PMI is the one we’re faced with. We put down 20% two years ago, but have nowhere near that now. Re-financing would save us about $200 per month, but PMI would be over half that. Simply not worth it. Oh well!
Leave a Comment