You can’t turn on the television these days without hearing about how low mortgage rates are. Following a series of interest rate cuts by the Federal Reserve, mortgage rates are at their lowest levels since 2004… but how do you know if a new mortgage is right for your situation? Taking out a new mortgage loan costs money and here are several tips to help you decide if refinancing is right for your situation.
Determine Your Break Even Point
You may have heard an old wives tale known as the “Two Percent Rule” of mortgage refinancing. This “rule” states that you should not refinance your mortgage unless the new mortgage rate is exactly two percent lower than what you’re already paying. This rule is complete rubbish! The decision whether or not it makes sense to refinance is actually quite simple in most cases and can be answered with a single question.
“How Long Before I Save Money?”
The answer to this question is also fairly simple to calculate. Take the amount of money you save with a lower mortgage payment and divide your closing costs and fees by this savings. This will tell you how many months it will take to realize a savings from the new home loan; if this length of time is acceptable to you than it probably makes sense to refinance in your situation.
Here’s an example to illustrate the decision to refinance your mortgage. Suppose for instance taking out a new home loan lowers your mortgage from $1100 to $900. This is monthly savings of $200 and your closing costs, fees, and points total $4,000. Divide $4,000 by the $200 you’re saving and it will take you 20 months to recoup the expense of refinancing your mortgage.
Beware Markup & Junk Fees
Once you’ve decided to go forward with a new mortgage it’s important to do your homework and learn how mortgage rates are quoted if you want the lowest possible interest rate. Homeowners who do this are able to refinance with wholesale mortgage rates without paying unnecessary fees. You can learn more about wholesale mortgage rates by registering for a free video tutorial; register today while these videos are still a free offer.