Over the past week, mortgage rates hit an all-time low...again. If you didn't get in, don't fret. They've only crept back up slightly. For some, it makes refinancing at these ridiculous rates not as beneficial. But for others, they still stand to save significant amounts of money by refinancing. My recommendation - examine your budget, find an expert mortgage loan officer, and do some math.
What's Your Goal?
What's your goal from refinancing? Do you just want to say you have a stupid low rate? To be honest, that was part of the appeal for me - I felt like it would confirm that I was an expert. Never mind the part that I pulled the trigger last August and refinanced then when I thought they had bottomed out. We can watch trends and make guesses, but none of us inside or outside the industry knows exactly what rates will do in the future.
Are you looking for monthly savings (lowering your payment) or long-term savings (reducing the total amount of interest you'll pay)? Maybe life has happened and you need to free up some cash flow - a refinance to a still low rate and extending your term may be beneficial to weather a storm for now. Maybe you've, as one customer put it, "gotten some raises" since you bought your home and you can afford to pay a little extra for long-term savings. Now may be the opportune time for you to lock in a low rate and rapidly eliminate your mortgage debt.
Very few refinances are "no cost." Don't be misguided by that expression. I always attempt to compare apples to apples by examining someone's current mortgage and comparing it to a "nothing out of pocket" refinance. What "nothing out of pocket" means is that yes, there are closing costs, but they are being rolled into your loan. Therefore, you are paying nothing out of pocket at closing. I can't compare a mortgage where you have to pay $2,500 or more in closing costs up front to your current mortgage where that's not the case. I need to make both of these as similar as possible.
Running the Numbers
How does the math work on that? Here's how it worked out for one customer.
Current Mortgage: Payment of $499.29 x 334 remaining payments = $166,762.86
30 Year Option: Payment of $427.09 x 360 payments = $153,752.40
20 Year Option: Payment of $559.19 x 240 payments = $134,205.60
While it would seem crazy to go back up to a 30 year mortgage, if the customer plans to stay in the house long term, they would still actually save money. Or they have the option to pay a little extra and save more money!
I leave escrow out of my total payment calculations for several reasons. One, it can change. Two, it's constant regardless of which mortgage you select - there's no lender who can negotiate a better deal with your county for lower taxes or get you a lower insurance premium.
To Refi or Not to Refi?
So is it a good time for you and your family to refinance? It depends. If you plan to be in your home for only another year or so, or if you already have an amazingly low rate, possibly not. But if you intend to be there a while and can get a rate lower than what you currently have, it may be worth considering. Again, numbers don't lie so doing the math with someone you trust will show you if refinancing is the right option for you.
What's Your Goal?
What's your goal from refinancing? Do you just want to say you have a stupid low rate? To be honest, that was part of the appeal for me - I felt like it would confirm that I was an expert. Never mind the part that I pulled the trigger last August and refinanced then when I thought they had bottomed out. We can watch trends and make guesses, but none of us inside or outside the industry knows exactly what rates will do in the future.
Are you looking for monthly savings (lowering your payment) or long-term savings (reducing the total amount of interest you'll pay)? Maybe life has happened and you need to free up some cash flow - a refinance to a still low rate and extending your term may be beneficial to weather a storm for now. Maybe you've, as one customer put it, "gotten some raises" since you bought your home and you can afford to pay a little extra for long-term savings. Now may be the opportune time for you to lock in a low rate and rapidly eliminate your mortgage debt.
Very few refinances are "no cost." Don't be misguided by that expression. I always attempt to compare apples to apples by examining someone's current mortgage and comparing it to a "nothing out of pocket" refinance. What "nothing out of pocket" means is that yes, there are closing costs, but they are being rolled into your loan. Therefore, you are paying nothing out of pocket at closing. I can't compare a mortgage where you have to pay $2,500 or more in closing costs up front to your current mortgage where that's not the case. I need to make both of these as similar as possible.
Running the Numbers
How does the math work on that? Here's how it worked out for one customer.
Current Mortgage: Payment of $499.29 x 334 remaining payments = $166,762.86
30 Year Option: Payment of $427.09 x 360 payments = $153,752.40
20 Year Option: Payment of $559.19 x 240 payments = $134,205.60
While it would seem crazy to go back up to a 30 year mortgage, if the customer plans to stay in the house long term, they would still actually save money. Or they have the option to pay a little extra and save more money!
I leave escrow out of my total payment calculations for several reasons. One, it can change. Two, it's constant regardless of which mortgage you select - there's no lender who can negotiate a better deal with your county for lower taxes or get you a lower insurance premium.
To Refi or Not to Refi?
So is it a good time for you and your family to refinance? It depends. If you plan to be in your home for only another year or so, or if you already have an amazingly low rate, possibly not. But if you intend to be there a while and can get a rate lower than what you currently have, it may be worth considering. Again, numbers don't lie so doing the math with someone you trust will show you if refinancing is the right option for you.
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