So, you’re thinking about refinancing your mortgage. While there could be many reasons why you’re considering a refinance (such as lowering your monthly payments, consolidating debt or changing your mortgage terms), they really all boil down to one thing – saving money. But how can you be sure that choosing to refinance now is the best option for you and your finances?
When deciding to refinance, most homeowners just look for what they’ll be saving on their month-to-month payments. That’s important, but you really should look at all the costs that go into refinancing, not just the end result.
Add up ALL the costs: This includes any points you may get as well as fees for your refinance application, loan origination, appraisal, attorney, credit report, extra insurance, inspections, PMI, title insurance, underwriting, and more.
Figure out your monthly savings: Subtract your current monthly payment from your refinanced monthly payment. For example, if you took out $200,000 on a 30-year fixed rate mortgage and had a current interest rate of 8%, your monthly payment would be around $1,468. But if you’ve decided to refinance your loan to a 6% interest rate, your monthly payments would be lowered to $1,199, giving you a monthly savings of $269.
Divide your savings by your closing costs: Let’s say the closing costs and fees that you added up came to $2,000. If you take your monthly savings ($269) and divide it by your closing costs ($2,000), you’ll see it will take you roughly eight months to break even before you start saving money.
Decide how long you’re staying in your home: If you were planning on leaving your house before you break even (in this example, eight months) then it wouldn’t be logical for you to refinance. However, if you’re planning on staying longer than that amount of time, then it’s worth your time and money to refinance your mortgage.
Once you’ve looked at the big picture when it comes to refinancing, not just the month-to-month savings, and you’ve decided to continue with a refinance, all you have to do is contact a refinancing expert to help you the rest of the way! Then you’ll be on your way to big savings!
For more tips and information about refinancing your home, download our e-book “Time To Refinance Your Mortgage? The Five Most Important Questions To Answer” for free at guaranteedrate.com.