Refinance
Refinancing is simply taking out a new mortgage.
If you are considering refinancing your home loan, the first steps are determining your short and long term goals and then evaluating the different types of refinance programs available. Once you have your goals to what's available, you will be able to make an informed decision on how you want to proceed.
The first thing to consider is your current interest rate. If you purchased your home when interest rates were high or if you have an adjustable rate mortgage, chances are refinancing to a different- lower term may be able to save you money immediately and over the course of your loan. If you purchased or refinanced your home when interest rates were low, refinancing may not be the best thing to do.
In the past, it was a general rule that refinancing makes good financial sense if your current interest rate is at least 2 percentage points higher than the current market rate and you plan on owning your home for at least 3 years. The 2 point difference in the interest rate was necessary in order to recoup refinance fees.
Nowadays, it makes sense to consider refinancing with less fluctuation in the interest rate because it is possible to refinance and pay no fees or no points! You consider the length of time for which you will own your home because of the costs involved in refinancing.
Here are some examples of how refinancing can save you money
Lower Your Rate
Current loan |
$250,000.00 |
30-year Fixed Rate |
6.875% |
Principal & Interest Payment |
$1,642.32 |
New Loan |
$255,000.00 |
30-year Fixed Rate |
5.25% |
Principal & Interest Payment |
$1,408.12 |
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By Lowering your Interest Rate, and even including $5,000 for costs or fees, every month you could save = $234.20
Long term saving
after 5-years |
after 15-years |
after 30-years |
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$81,312.00 |
Combine your 1st & 2nd Mortgages
Current loan |
$200,000.00 |
30-year Fixed Rate |
6.5% |
Principal & Interest Payment |
$1,264.14 |
$50,000.00 |
30-year Fixed Rate |
8% |
Principal & Interest Payment |
$366.88 |
Current Monthly Principal & Interest Payment= $1,631.02 |
New Loan |
$255,000.00 |
30-year Fixed Rate |
5.5% |
Principal & Interest Payment |
$1,447.86 |
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By Combining your loans and even including $5,000 for costs or fees you could save = $183.16
Long term saving
after 5-years |
after 15-years |
after 30-years |
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$ 65,937.60
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Changing the "Term" of your loan
Current loan |
$250,000.00 |
15-year Fixed Rate |
5.5% |
Principal & Interest Payment |
$2,042.71 |
New Loan |
$250,000.00 |
30-year Fixed Rate |
5.75% |
Principal & Interest Payment |
$1,458.78 |
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Even with a higher interest rate, by changing the term you can save
$583.78 every month!
All rates, loan amounts and payment examples have no reflection of what you will qualify for. They show examples of saving benefits by refinancing your note rate and/or term of your loan.
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