When Should You
Refinance Your House?
The right time to refinance a mortgage is always a hugely debatable item and there are several schools of thought on the best time to do it. As a general rule, anytime that your interest rate is about 2% below your current rate, it is time to pull the trigger. By using the 2% figure, you should be able to breakeven on the refinance anywhere between 2-3 years for most conventional standard type mortgages and will work for most mortgage amounts. Now if you rate is high and you want to get immediate relief, many consider a refinance at a 1 ¼ to 1 ½ percentage savings especially if the value of the loan is high in relation to the actual cost of performing the refinance.
Now is the Time To Refinance!!!
The recent action by the Federal Reserve in lowering interest rates combined with a tough housing market is giving homeowners the opportunity to achieve some unexpected financial relief by lowering their overall mortgage payments. While the rates are low, it is imperative that you start evaluating the right refinancing option for your current mortgage situation.
YOU cannot afford to wait as the mortgage rates have dropped over 2% since early 2006. Listed below are some current rates offered by our preferred partners and the rates are for a conventional conforming mortgage of $417,000 or less with loan to appraised value of 80% or lower. If the mortgage amount will exceed 80%, that is not a problem, you can still get these rates; you will just have to pay mortgage insurance premiums.
- Fixed Rate-15 year Term Currently= 5.0%
- Fixed Rate-30 year Term Currently= 5.5%
- Adjustable Rate-5/1 Term Currently= 5.125%
- Adjustable Rate-10/1 Term Currently= 5.625%
If you are a homeowner that has a large mortgage, especially those with a balance that exceeds $417,000, you should definitely investigate your refinancing options even if you refinanced recently (in the past year or two). The reason that you want to do this is because the actual monthly payment savings from lowering your interest rate on a large mortgage are bigger and will enable you to recover the refinancing costs sooner. Consider the below example that assumes a current rate of 6.5% that is refinanced to a new rate of 5.5% with average closing costs of $2500:
- Loan amount= $200,000; monthly payment savings= $128; recovery time in months= 20
- Loan amount= $300,000; monthly payment savings= $193; recovery time in months= 13
- Loan amount= $400,000; monthly payment savings= $257; recovery time in months= 10
Consider the Costs
While refinancing your current loan may give you a rate lower than your current loan, performing a refinance will still have costs. It is imperative that you consider the effect of how closing costs will impact your ability to break-even on the refinance. Also, it is important to consider if any of the costs are tax deductable.
Nearly all homeowners know that when you pay loan origination points to get a mortgage, you can deduct the full amount from your tax return. But what most don't know is that When you refinance your loan, any mortgage origination points can only be amortized over the life of the mortgage. So deducting the full value of the points in one year is not an allowable option. Try to avoid paying points at all costs. The rates are low enough now that you don’t need to.
BEWARE if you hear a lender or broker tout a 'no cost' refinance, alarm bells should go off and don't believe it. While sometimes lenders don’t have application fees or charge loan origination points when refinancing, they usually price all refinancing costs into the loan rate amount which is usually higher. This means that you end up paying more over time. See banks don’t give anything away for free and they are in the business of making money and turning a profit therefore, don’t make loans without recovering their costs. The good news however, is that most lenders will roll all of the costs of refinancing into the new loan and the only cash that you will have to bring to closing is for the 3 months of pre-paids like taxes and insurance.. And when you factor in, that if timed right, you can skip a full months worth of payment and cover the pre-paids that way.
The easiest way to get started is to visit one of eDebtSolutions.org’s preferred partners for a no hassle review of your refinance situation with the lowest possible interest rates and refinance costs.
| Q | What should I do if I am deep in debt? |
| A | Whether it is caused by illness, the loss of your job, or simply just over-spending, a
financial crisis of this sort can seem overwhelming, but it often can be overcome. Don't let
your financial situation go from bad to worse.
Realistic budgeting, credit counseling from a good organization, debt consolidation, or bankruptcy, are some of your options. Knowing which one will work best for you depends on how high your debt is, if you can discipline yourself, and your prospects for the future. |