Refinancing Is It The Right Time

Refinancing,​ is​ It the​ Right Time?
When Should I​ Refinance?
At some point during the​ life of​ your mortgage,​ you​ will probably want to​ consider refinancing,​ or​ re-doing your loan .​
You may want to​ reduce your interest rate,​ lower your monthly payment,​ consolidate multiple loans,​ or​ obtain cash for a​ remodeling project or​ child’s education .​
No matter the​ reason for refinancing,​ the​ main question in​ deciding when,​ or​ even whether,​ to​ refinance is​ how long it​ will take to​ recoup the​ costs.
Refinancing a​ mortgage is​ not free .​
Because you​ are essentially getting a​ new loan,​ you​ will be paying closing costs again .​
The lender will need a​ new appraisal of​ the​ house and a​ new credit report,​ among other things .​
In order to​ determine whether savings from a​ lower monthly payment will be able to​ offset these costs,​ you​ need to​ know how long you​ plan on​ staying in​ the​ home.
First,​ determine what your new monthly payment would be if​ you​ were to​ refinance .​
Subtract this amount from your current monthly payment to​ determine how much you​ will save each month .​
Divide the​ closing costs of​ refinancing by the​ monthly savings to​ find out the​ number of​ months it​ will take to​ recoup the​ closing costs.
Let’s say your current interest rate is​ 6.25% and your monthly payment is​ $1477 .​
If you​ were to​ refinance at​ 5.5% for a​ monthly payment of​ $1277,​ you​ would save $200 a​ month .​
If the​ closing costs are $3800,​ divide it​ by $200 .​
That equals 19,​ which means it​ will take 19 months before the​ closing costs are paid off and you​ can start enjoying the​ $200 extra per month.
If you​ plan on​ selling the​ house before then,​ don’t refinance .​
If you​ will be staying for at​ least as​ long as​ it​ takes to​ recoup the​ costs,​ you​ may want to​ consider refinancing .​
Generally speaking,​ two years is​ a​ good amount of​ time for recouping the​ costs.
Another aspect you​ need to​ check into is​ whether your mortgage has a​ prepayment penalty .​
Some lenders may waive the​ penalty if​ you​ refinance with them,​ but you’ll need to​ know the​ specifics of​ the​ penalty.
Refinancing Is It The Right Time Refinancing Is It The Right Time Reviewed by Henda Yesti on August 23, 2018 Rating: 5

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