A basic mortgage refi calculator can help you decide if refinancing your home loan is the right decision. Many financial advisors will tell you that according to the two percent rule of refinancing you should never refinance unless your new mortgage rate is two percent lower than your old interest rate. As you will see, the most basic mortgage refi calculator reveals just how bad this advice is. Here’s how you can use a mortgage refi calculator to decide if refinancing is a good decision and how to avoid hidden markup and junk fees on your next home loan.
Using a Mortgage Refi Calculator
Refinancing your home could save you thousands of dollars if you don’t fall victim to junk fees and hidden markup. A mortgage refi calculator can tell you if a new mortgage makes sense in your situation. Simply take the amount you’ll be saving each month month with the new, lower payment and divide your total fees and closing costs by this amount. The figure you come up with is the number of months it will take to recoup your expenses before you realize any savings. Here’s an example to illustrate how this works, follow along with your mortgage refi calculators if you like.
Suppose you’re refinancing your home for $315,000. You’ve been quoted a mortgage rate of six percent and will have to pay closing costs of $6,000. Using a mortgage refi calculator for a thirty year, fixed rate home loan your monthly payment on his loan will be $1888 per month. Your old payment at 5.75% was $1999. This is a savings of $111 per month. Sounds good right? Remember this savings is going to cost you $6,000 in closing costs, meaning it will take you 54 months, just under five years to recoup your expenses. If you’re okay with the amount of time it takes to make your money back, then refinancing makes sense in your situation.
What About Hidden Markup & Junk fees
What our mortgage refi calculator isn’t telling is how junk fees and hidden margin affect the amount of time it takes to recoup your expenses back. Obviously junk fees raise your closing costs and the amount of time it takes to recoup those expenses. Avoid the junk fees and you’ll get your money back faster. What about this hidden markup of your mortgage rate? Loan originators like mortgage brokers do this to collect a little known commission known as Yield Spread Premium from your lender. Think of it as a kickback for overcharging you.
What this hidden margin does is raise your monthly payment amount, decreasing the savings you’ll get from refinancing. Because you’re saving less it will talk you longer to recoup closing costs and other junk fees you pay at closing. As you can see, if you want the optimal home loan when refinancing, it takes more than a mortgage refi calculator. You’ll need to learn how to recognize and avoid this hidden commission that dilutes your savings and the junk fees that steal money from your wallet.
You can learn more about using a mortgage refi calculator and avoiding unnecessary markup and junk fees by checking out my free Underground Mortgage Refinancing Videos.
Here’s a quick sample to get you started by exposing one of your mortgage broker’s dirty little secrets that’s costing your neighbors thousands of dollars every year.