Mortgage Rates Are Low -Should You Refinance?
How to Tell If It's Time to Refi
Why refinance your mortgage?
Is your mortgage interest rate over 6%? Did you buy into that sneaky mortgage broker's line and get an adjustable rate mortgage, or ARM? If you did, your rate may be about to reset, increasing your monthly payment by up to 50%!
Refinance now into a new 30 year fixed mortgage and you could cut hundreds of dollars off your monthly mortgage payments. Even better, with a fixed rate you don't need to worry about future rate increases.
When you might be better off not refinancing
Refinancing a mortgage means taking out a new mortgage to pay off the old one. Like last time you signed the dotted line, there are closing costs to consider. Even for a refinance, these will be substantial. Get a "good faith estimate" from your lender to see the best estimate for those costs.
Fees you need to consider include appraisal, credit check fee, and various service fees, all numbered from 801 to 899. Add taxes and government fees along with title company charges. These are all numbered from 1101 to 1399. Sum up all these costs to see how much refinancing will actually cost you.
For this purpose ignore items from 901 to 1099, covering interest on the new loan and setting up a new escrow account. These will be made up by the monthly payment you'll skip and the refund of your old escrow account.
If you're planning to sell your house in a few years, you may not have enough time to fully recoup your refinancing costs. Even if you roll the closing costs into the new mortgage, you'll still pay them back over 30 years, with interest.
The bottom line - should you refinance now?
Ask your lender how much your monthly payment will drop. Once you've summed up your actual costs of refinance, divide that by the reduction in your monthly payment. The result is the number of months it will take you to recoup your refinance closing costs. If you can recoup your costs before you're likely to sell the house, by all means consider doing so. Otherwise, wait and see if rates drop far enough to change that answer.
Published by Opher Ganel
Researcher, teacher, photographer, storyteller. Creativity is my escape from the day-to-day. View profile
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- Mortgage Rate Refinancing
- Best Refinance Mortgage Rate
- What is a Cash Out Refinance Anyway?
- The Advantages of Using a Mortgage Calculator
- Refinancing Closing Costs
- Guide to Closing Costs for Home Buyers and Sellers in New York State
- Closing Costs: A Buyer's Guide
- With mortgage rates dropping again, it may be time to refinance your mortgage.
- Refinancing may not make sense if you're expecting to sell your house soon.
6 Comments
Post a CommentExcellent advice! I bought a house last year just before the major drops in interest rates, and I got a 6% interest rate due to a good credit score.
Thank you for the note, we only owe $22,000 and the credit union simply extended us for 5 years. Definitely our credit union is not one of those predatory places. But get this, in 1995 we got a 2,000-square-foot four-bedroom with sunroom and kitchen nook for $45,000. Is Saginaw cheap or what, one of the few good things about this place. Of course, if we now were to try to sell we would be up a little creek, but I can't believe prices seen on the Home Channel.
Thanks for writing this! We were just having this discussion in our household! Very helpful info!
Balloon mortgages are sort of a hybrid loan. They behave like a conventional mortgage for a number of years, and then the entire balance is due. The positive side is that you may get a better rate since the interest risk for the lender is smaller (the loan does not stay out there for 30 years but only 7, 10 or 15 usually). If the rate on the loan is fixed, your interest and principle should stay the same until the balance is due, just like in a 30 year fixed loan. The negative side is that after the set number of years the balance is due, and usually it is almost equal to the original balance. The best way to use a balloon loan is to (a) refinance into a fixed loan before the balloon payment is due (usually a 15-year fixed which has a lower rate than a 30-year loan), or (b) sell the house before the balloon payment is due.
Sometimes I feel like "a credit union" with the neighbors my spouse, but obvioiusly I'm IN a credit union. That was a good one if I do say so myself., down in the box below.
I just discovered I have a ballooon but I'm a credit union, so hopefully we'll be OK. Plus we only owe another $22,000 on the house. That's maybe one good th ing about Saginaw, the housing is so cheap because Saginaw is the pits. Also, I enlarged your photo of that cash and printed it out, but I don't think it will pass at the store tomorrow! -- Mike