Should you refinance your home mortgage?
Mortgage Interest rates are low and have been for quite a while. While many home owners have taken advantage of the lower rates, some people don’t think they can or should. Even if your house is “underwater”, in many cases you can refinance. Should you?
There was a rule of thumb that rates have to be 1% less than your current rate for it to make sense. Not a good guide. The time it takes to recoup the fixed costs of refinancing is less for a large mortgage than for a small loan. For example, on a $300,000 mortgage the savings associated with a drop of .75 of 1% , would be approximately $130 a month. On a $75,000 mortgage, the savings are approximately $30 a month. That’s only the savings associated with the interest rate reduction. When refinancing, the life of the mortgage is often reset to 30 years, so the amount paid towards principal declines. This reduces the monthly mortgage payment further and benefits the mortgagor’s cash flow. But if the goal is to pay off the home mortgage, this is counterproductive, unless the home owner makes the same mortgage payment as before so the extra goes to principal reduction or they refinance into a shorter term mortgage. Interest rates on 20 or 15 year fixed rate loans are lower than interest rates on 30 year mortgages for the same set of circumstances. Homeowners also should consider the impact of refinancing on any mortgage insurance they pay. Refinancing may eliminate or reduce their mortgage insurance.
In some states, if you qualify for a HARP loan, the state has money to actually grant the home owner funds to reduce the amount of the mortgage. This falls under the Hardest Hit Funds. Arizona does participate.
Many lenders offer potential borrowers several rate options, one where the borrower pays all the closing costs, some of the costs or none of the costs. Clearly if a borrower can save money and not have any out of pocket costs, it makes sense to refinance. However, if a borrower plans to own the house for the long term without future refinances, the lowest rate option may make the most sense. Over the life of the mortgage they will save the most money. The borrower should understand where the break-even point is for refinancing. I am happy to discuss your situation and see if refinancing makes sense for you.
This information is not intended to be an indication of loan qualification, loan approval or commitment to lend. Other limitations may apply.
Minette Goldsmith, your Tucson Mortgage Loan Officer at V.I.P, Mortgage, Inc. 520-975-3909 firstname.lastname@example.org
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