Should I refinance my current mortgage now?

I have had the question ” should I refinance now” several times and want to send out some basic information about refinancing.  First,  even with a reduced interest rate you need to make sure you look at the complete picture.  Many companies are encouraging everyone to refinance because rates are so low.  Well, let’s remember there are costs associated with refinancing and your term can come into play too.

With rates at all time lows this is a good time to have a “mortgage check”, but it may not benefit you to refinance.  Here are some items to remember to review when you talk over your options.  The cost associated with the refinancing needs to be calculated out to determine how many years it will take you to recoup those costs.  For example: if your rate is 5.5% that you have had for 6 years and you’re being offered 3.75% for a 30 year, you have to calculate out the numbers of years you have now added to your mortgage,  and the cost.  You will need to take your closing costs and divide them out to determine how many years you will have to recoup that cost.  If it takes 4 years plus, you have added 6 years back on your mortgage.  So, this may not be the best option.  That is when it may be the time to look at reducing your term, to acquire the best outcome.  For example using the above scenario, now making that a 20 year mortgage at 3.50%. You have now reduced the term of your loan by 4 years, lowered your rate- which should be the equivalent of your current payment, and you can absorb the costs within 4 years.  This is a better fit!

The basic rule of a refinance is:  to save money on a  refinance, you must stay in your house longer than the break even period – the period over which the interest savings just cover the refinance costs. The larger the spread between the new interest rate and the rate on your existing loan, the shorter the break-even period. The more it costs to obtain the new loan, the longer the break-even period.

If you would like to have your “mortgage check” please feel free to contact me at or 239-246-6000.

Posted on June 25, 2012, in Finance and tagged , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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