4 Perceptions of Refinancing that Might be Keeping You from Saving Money
Refinancing a mortgage can have many benefits, such as a lower interest rate and monthly payment, refinancing from an adjustable rate mortgage to a fixed rate mortgage, or reducing your term to pay off your mortgage faster. But staying in your current mortgage may be a better option if the costs of refinancing outweigh the savings. Does the thought of refinancing put a bad taste in your mouth because of the negative things you've heard from friends or family? One thing to remember is that whether or not a mortgage refinance is right for you depends more on individual circumstances than this week's mortgage interest rates or your neighbor's past experience.
What perceptions might be keeping you from saving money with a refinance?
"I've read that the rate needs to be 1% or 2% lower than my current one."
"I've read that the rate needs to be 1% or 2% lower than my current one."
When average loan amounts were much lower, it took a much bigger drop in rates to achieve tangible savings. Today, even small rate differences can make a big impact. The best way to determine value is to simply divide your costs by your savings. This provides a "break-even" period, and if you know you'll be using your loan past this point, the rest is pure benefit.
"I haven't yet reached the break-even point from my last refi."
"I haven't yet reached the break-even point from my last refi."
That may be okay. Refinancing again will require additional investment, but it could get you to an overall break-even point—and greater savings—more quickly.
"I don't want to add years back to my loan."
"I don't want to add years back to my loan."
The new loan term created when you refinance is only on paper. You determine the actual length of the loan by how much you pay. If lowering your interest rate saves you $100 per month, add that money to your new payment. You will reduce your balance more quickly and reach free and clear ownership faster than you would by keeping your current loan.
"It's too expensive."
"It's too expensive."
I'd rather save my money. Refinancing is all about saving money! The historically low interest rates that make refinancing such a good deal right now also make “saving" your money in the bank a lousy one. Banks are paying just fractions of a percent to hold your cash, but investing in a refinance could save you hundreds of dollars per month for a far greater yield on your cash.
Example: If closing costs = $3,600 and annual savings = $1,200 that's a 33% rate of return on your money ($3,600 x 33.3% = $1,200).
Even better, you can often refinance without using any funds "out of pocket."
Refinancing can have other benefits, too.
Example: If closing costs = $3,600 and annual savings = $1,200 that's a 33% rate of return on your money ($3,600 x 33.3% = $1,200).
Even better, you can often refinance without using any funds "out of pocket."
Refinancing can have other benefits, too.
A lower rate may mean not only a smaller payment but more paid toward principal each month, too. You may be able to free up cash for renovating your home, financing a college education, purchasing a vacation home or investing in property without adding to your monthly expenditures.Are you ready to explore you refinancing options by the numbers? We're here to help. Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting debt under control.
Before you refinance, take a careful look at your financial situation to determine if refinancing is the best option for you. One of our mortgage experts would be happy to sit down with you to review your options and help you make the best choice for your financial needs. If you're considering refinancing your mortgage, trust in the mortgage professionals at MHQ - Mortgage HeadQuarters to have your best interest in mind. We can help you choose a mortgage program that's right for you and your specific needs!
Comments
Post a Comment