Does Refinancing Save "YOU" Money
Does refinancing to a new lower interest rate or a shorter loan term save you money?
Lower interest rates mean lower monthly payments - If rates are lower since you took out your mortgage, refinancing may get you a lower interest rate. Monthly payments go down due to the combination of lower interest rate and new term of the loan.
Will refinancing "REALLY LOWER" save you money? That depends on the time you expect to live in the respective home and the cost of refinancing. The key question lies on how long does the newer loan amount take to provide you a break even point between the old mortgage dollar and the new lower refinanced dollar amount.
Current Monthly Mortgage Amount: $1,500
Cost of Refinancing $5,000
New Refinanced Monthly Mortgage: $1,350
Monthly Savings $150
Breakeven Point 5,000 / 150 = 33 (33 Months)
Are you looking to lower your monthly payments across all your loans/debt? A step in that direction is done by considering to refinance your mortgage. There are two basic ways to accomplish this.
1) Switch from a fixed-rate mortgage, in which the interest rate you pay doesn’t change from year to year, to an adjustable-rate loan (ARM), in which the interest rate your pay to depends on the market; or you may do the reverse and switch from adjustable to fixed-rate payments.
2) Cashout refinance, in which your pay off all of your old loans and take out new ones. Why does this make sense? Over time, the interest you pay on the original loan gets compounded, meaning that you start to pay interest on the interest you owe.
New loans provide a fresh start. When lenders consider your refinancing application, they look at factors like current balance, monthly payment and the remaining number of monthly payments over time to determine how best to work together with you.
Refinancing a fixed-rate mortgage - If you plan to stay in your home for the long term and never want to worry about rising interest rates, replacing your ARM with a fixed-rate mortgage may be a smart move. With an interest rate that never changes, a fixed-rate loan gives you predictable payments throughout the loan term.
Refinancing an Adjustable Rate Mortgage with another ARM - Are you planning to move within the next several years, you may want to consider replacing your current ARM with a new one. In most cases an ARM will start off with a lower interest rate than what you’d get on a fixed-rate loan, and that rate can stay fixed for anywhere from three months to 10 years. Depending on how long you intend to stay in your home, you can choose an ARM that isn’t scheduled to adjust until after you plan to move.
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