There?s 4 to 5 reasons why people will typically consider refinancing their home, or one of the other properties they might own. Some make a lot of sense but you need to consider the actual benefit of refinancing and if it indeed is in your best interest to do so. Obtaining a lower interest rate is usually a top priority for those that are seriously considering a refinance strictly to lower their mortgage rate.
Obtaining a Lower Rate: This reasoning here is pretty obvious. If you are able to get a lower interest rate on your mortgage, you are going to see interest savings over the life of the loan. If decreasing your interest rate means you will save $50 per month, that?s $600 per year and a whopping $3000 savings over 5 years. However, even with these savings in place, make sure you understand why those savings don?t necessarily kick in until a couple years have passed. Most mortgages are going to have closing costs. If you include those closing costs in the balance of your new mortgage, your principal balance on your loan will increase thus decreasing the equity in your home. It essentially will cost you thousands to save $50 per month in our example. Let?s say the closing costs on your new mortgage, where you have lowered your interest rate and are saving $50 per month, has closing costs of $4000. It will take you 80 months, or just over 6.5 years to recoup those costs. Now, if $50 would do wonders for your budget, you might not care that it would take so long.
Most people are going to want to see a much larger benefit in their refinance than a mere $50 savings per month. If you were able to lower your rate enough that the savings equaled $175 per month, then it would only take about 22 months or less than 2 years to recoup those costs. Additionally, $175 is really going to help the majority of people?s budgets so much so that even if it took three years to recoup the costs of obtaining the lower rate, it still makes sense. Read more about the 4-5 reasons to refinance
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Matt Madlang is a seasoned residential mortgage professional and president of BeatMybroker.com where you can the find the lowest mortgage rates available.
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