by haytham fox
Question by tobvenetian: How do I know if I should refinance my mortgage?
I owe about $ 130,000 on a 30-year mortgage that I took out in 2002. It has a fixed interest rate of 5.85 percent.
Answer by golferwhoworks
if you can get in the low 4% range on a 15 then the payments should be about the same. That is what I would do. Or I would just send more monthly to cut some years
Know better? Leave your own answer in the comments!
Read the following:
How to Refinance Home Mortgages
you can look at it from cash flow improvement or actual savings.
If it is merely cash flow improvement you seek (less monthly cost) then you get a quote and take the total amount of monthly reduction then divide the total cost of the new loan by the amount of the payment reduction. If the number you come up with is is less than the number of months you plan to stay in the loan and the monthly improvement is worth your time then go for it.
In regards to this you may have to start a new escrow account if you change lenders it would be advisable to pay this amount out of pocket. It reduces the time to recoup and sense you will be getting the return of your current escrow account back and would have paid the difference between the two accounts anyway had you not refinanced.
If you actually want to save money
Technically need your the balance of the mortgage when you originally got it (if you know what month you closed on the loan that would also make things easier) to tell you exactly what you could save using current market rates. (I will have to assume good credit and that you have at least 20% equity in the property)
The following article gives a good list of seven pointers when thinking of refinancing. It is written by a Certified Financial Planner at FiGuide.
Things to consider:
1. How long do you plan on living in the house? If the answer is not at least 3-5 years, then you will probably not recover the closing costs.
2. What is the new interest rate you will be receiving? If it is not at least a 1-1/2% less then your current rate, then it is probably better not to refinance. Also, does your new interest rate involve any points? Will your new mortgage require you to pay private mortgage insurance (PMI) while your current mortgage does not?
3. Has your credit score significantly improved since you purchased your previous mortgage? What is your current debt-to-income ratio?
4. How much difference will it really make in your monthly payment? I have heard from some of my mortgage broker friends that lending institutions now have payment difference minimums that they need to see before they offer you a refinance.
5. If you are currently in an adjustable rate mortgage (ARM), I highly encourage you to meet with a professional to see if refinancing to a fixed-rate mortgage is a possibility. One of the main benefits of home ownership is the leverage a fixed-rate home mortgage has in regards to inflation protection. If you have an ARM mortgage, then you are giving your institution the hedge against inflation.
6. Make sure you understand how many more years you will be paying if you “stretch” the amount of years to a longer period then what you currently have left on your mortgage. Sometimes refinancing can be a “wolf in sheep’s clothing” when you really look at the hard numbers.
7. If refinancing is the best option for you, then don’t wait on it. I have heard countless stories from people who were looking at refinancing when the rates where around 4.8% a few months ago but they wanted to wait and see if rates would go lower. This philosophy is similar to the “market timing” approach with investing and from my experience; most of the time I find the consumer will lose this game. If it is right for you now, then do it. Don’t wait!