If you’re shopping for today’s lowest mortgage refinance rates you’ve already encountered a deceptive fee lenders use to boost their profits at your expense. If you fall for this fee it’s going to be more difficult, even impossible to break even on your out-of-pocket expenses. Here are several tips before you refi to help you avoid paying for today’s best mortgage refinance rates.
Save Thousands On Mortgage Refinance Rates
Refinancing with today’s best mortgage companies can slash hundreds of dollars from your monthly housing payment. The problem with paying for mortgage refinance rates is that it boosts your out-of-pocket expenses and if you’re unable to break even you’ll be losing money no matter how low your new interest rate.
What is this unnecessary fee you’re paying for mortgage refinance rates that I’m talking about?
Paying unnecessary lender discount points robs you of the benefit you’re getting from mortgage refinancing.
Spend any amount of time shopping for mortgage refinance rates and you’ll find that lenders quote interest rates including discount points first. If you’re not already familiar with discount points this is a form of prepaid interest you pay at closing to lower your mortgage refinance rates. One discount point is one percent of your home loan and typically lowers your interest rate by .25%.
Should You Pay Discount Points?
Refinance rates are at 60 year lows and keep falling lower. Should you pay the lender a fee to get even lower mortgage refinance rates? For many homeowners who do not have cash on hand this isn’t a question; however, many make the mistake of thinking discount points put them ahead of the game.
You can answer this question for yourself by approximating the break-even-point for recouping your closing costs. You can do this by dividing your total closing costs including points by the amount your monthly payment will go down each month. This gives you (approximately) the number of months it’s going to take to break even on your out-of-pocket expenses before you’ll benefit from today’s low refinance rates.
Notice that I say approximate because this calculation is only valid if you keep the same term–length or go shorter. If you choose a longer term length like going from a 15-year home loan to a 30-year loan you’ll never break even due to the higher finance costs.
Here’s an example to illustrate my point:
Suppose you’re refinancing your home for $250,000. Your old payment based on an interest rate of 6.5% was $1,580 per month. The lender is quoting you mortgage refinance rates at 4.0% with half a point paid up front. This would lower your monthly payment to $1,200 per month at a cost of $1,250 for that half point. This is paid in addition to average closing costs of $5,000.
Is it worth paying $1,250 extra for the discounted rate?
If you don’t pay discount points in this example the refinance rate will be 4.5% with a monthly payment of $1,266. That’s a difference of $66 per month. It will take you an additional 18 months to break even recouping the discount points you’re paying. Since it’s going to take you 16 months to break even recouping your $5,000 in closing costs, that’s a total of 34 months.
Is your cash better spent on other things? Considering that the average homeowner refinances every four years that’s up to you to decide.
Click Here For More Details…
You can learn more about paying less for mortgage refinance rates from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.
- Underground Mortgage Videos