Refinancing your mortgage is a great way of saving money, but there are a few things to consider first. This article goes through them to help you decide if refinancing is right for you.
After a few months of making payments on your mortgage, you may feel the urge to refinance. But is it time to refinance? Should you refinance your mortgage? The answer is yes! Here are some things to consider…
Mortgage rates have been rising since the beginning of the year. The average 30-year fixed rate mortgages today is currently at 4.34 percent, up from 4.17 percent in early January. A 30-year fixed rate mortgage today is equal to about 4.17 percent, up from 4.05 percent in early January.
This article may contain affiliate links, which means I receive a free commission if you decide to make a purchase through my links. Visit this page for more information. With mortgage rates at an all-time low, many people are wondering whether they should refinance their mortgage now. Finally, refinancing your mortgage is one of the best ways to save potentially thousands of dollars. But when there are so many different numbers in circulation, it can be confusing! Money Ninja is here today to simplify mortgage refinancing so you can easily know if it’s worth refinancing!
Mortgage refinancing overview
Owning your own home has long been considered a great American dream. There’s nothing better than coming back to a place you can truly call home. But owning a house is also expensive. If you didn’t buy your house with cash (and you’re glad you did), you probably have a mortgage that you pay thousands of dollars in interest on every year. One of the best ways to save money is to refinance your mortgage at a lower interest rate. However, the decision to refinance is not always as simple as finding a lower interest rate. There are costs and fees associated with refinancing. To know whether or not you should refinance your mortgage, you need to determine your break-even point.
To find the break-even point
The break-even point is the period in which the interest savings outweigh the costs of refinancing a mortgage. It’s simple: The break-even point will help you decide whether or not you should refinance your mortgage. If you don’t know how long it will take to recoup the cost of refinancing, stop the refinancing process now and find out. Because without knowing it, you could even lose money. Learn how to calculate your break-even point here:
Step 1: Find out how much you can save by refinancing your mortgage
The first step in determining your break-even point is to calculate how much you will save by refinancing your mortgage. Use the mortgage calculator provided by our friends at MortgageCalcutor below to enter your current mortgage and refinance rate information : For example, let’s say you have a $350,000 mortgage with a 4.5% interest rate on a 30-year loan. You have paid off your mortgage for 5 years and still have 25 years to go. After scouring credible sites for the best mortgage rate, you find a refinance offer of 3.0% on a 30-year mortgage. Using a mortgage calculator, you can compare the old loan with the new loan: In this scenario, you will save $469 per month in mortgage payments and $52,403 in interest over the life of the mortgage. That’s a lot of money! If you’re working with a lender that doesn’t charge closing or refinancing fees, congratulations! You save money immediately and don’t have to worry about a break-even point. Nevertheless, lenders need to make money, so it is rare that the loan closing costs are zero.
Step 2: Add closing costs
Closing costs include the many fees that lenders charge for their services and expenses. It used to be very confusing, but thanks to government regulations, it’s much clearer now. The costs are broken down by component. Here’s an example I used:
- Section A – Right of first issue Fees charged by the lender, such as. B. Issuance or application fees. If you purchased points to lower your rate, those costs will also be listed here.
- Section B – Services which you cannot afford to pay Fees charged by the lender for the remuneration of services – for example. For example, hire someone to appraise the value of your home or prepare a credit report. The lender is free to choose who to use for this purpose.
- Section C – Services you can buy Charges for other services you may use, such as. B. Title costs (title insurance, notary fees, etc.).
- Section D – Taxes and other governmental charges: Fees charged by the State for recording refinancing data in its books
- Section E – Advances: A certain period of time elapses between the refinancing and the actual payment of the first month of the new loan. Prepayments are used to pay interim items such as mortgage interest and property taxes.
If you add up the total closing costs, ignore anything aboutadvances. Don’t include it in your calculations. Prepaid interest and property taxes are things you have to pay no matter what, whether you refinance or not. To get the actual closing costs, add sections A, B, C and E only (highlighted in yellow below) : If you add up these sections in this example, the total closing cost of transaction is 1,654.
Step 3: Determine break-even point
Now it’s time to calculate how many months it will take to break even. To do this, divide your total loan cost by your monthly savings. Remember, in step 1, you save $469 a month in mortgage payments. In step 2, we calculated that your cost to complete the transaction would be $ 1,654. Divide $1,654 by $469. Answer: 3.5. This means that it will take 3.5 months to recover the cost of refinancing. This is your break-even point. If you plan to stay in your current home for more than three and a half months, you have an advantage. For most people, there is nothing wrong with this scenario. The only time this doesn’t make sense is if you plan to sell your home in the near future. And if that’s the case, why are you reading all this?
Compare refinancing rates
Ready to begin the refinancing process and wondering where to start? Each bank offers refinance rates that you can look up, but going to each lender’s website and finding information about refinance rates and closing costs would take too much time. You should find refinance comparison sites that show you the rates offered by many lenders. This will save you time and money . I prefer to use Credible (NMLS #1681276) for this purpose. Credible allows you to compare lenders in as little as 3 minutes. You get real rates from multiple lenders without your credit history suffering. Unlike other online sites, you won’t be bombarded with emails and phone calls.
Refinancing your mortgage is one of the best ways to save money. We’re potentially talking nine thousand nine thousand dollars here. It used to be a very confusing and intimidating process, but companies like Credible have made it an easy and enjoyable experience. Determine your break-even point and compare lenders today. How much did you save by refinancing? Is there anything else you’ve learned along the way? Share it with the ninja community in the comment section below!It used to be that people were hesitant to refinance their homes because they feared the loss of the equity they had built up over the years. However, today, it’s no longer the case. The average home-owner can expect to see a minimum of three percent in return on their investment when they refinance… but the power of compounding can work magic if you understand the kind of mortgage you’d like to refinance.. Read more about the truth about refinancing your mortgage and let us know what you think.
Frequently Asked Questions
When Should I refinance my mortgage?
Refinancing your mortgage is a popular choice for many people, especially when interest rates are rising. The decision to refinance can be made when you take a look at your overall financial situation and see if you can cash out on some of your equity and get out of a higher interest rate. This is a great option if you have good credit and are able to get a better interest rate on your mortgage in order to lower your monthly payments. In this post I’m going to explain what a mortgage refinance is, how to choose the best time to refinance your mortgage, and how much the refinance would cost.
Is it worth refinancing for .5 percent?
Have you refinanced your mortgage? Or, have you been thinking about doing it? Maybe you are thinking about refinancing because you want to save money on your monthly payments, or maybe you want to lower your interest rate. Whatever your reasons are, there are some things you need to know before you take that step. Lately, the Federal Reserve has been making comments about when it will raise interest rates. As a result, many think that rates will be raised this year, but how soon will they rise? Will it be next year, or two years from now? Or will it be later? How about 2016? What if we don’t see any interest rate hikes for the next five years? What then? There are lots of questions that come with these scenarios, and this blog post will help to answer some of them.
Why refinancing is a bad idea?
Refinancing is harmful for your credit score. Refinancing is just as negative for your credit score as filing for bankruptcy is. However, that’s not to say that it is always a bad idea, especially if you’re comfortable with the idea of keeping your debt in check. Whether you’re thinking of refinancing your mortgage or not, here are a few things to consider if you have a mortgage on your home. It’s a good idea to refinance your home loan if you plan on staying in the property for a long time. This is because you are able to get a better interest rate that will save you money in the long term, but it is also important to shop around for the right loan.
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