WHEN IT IS A GOOD TIME TO REFINANCEWhatever you decide is the best option for you today may change as economic conditions or your personal circumstances change in the future. So how so I know when it is a good time to refinance?
Whether or not you should refinance usually depends on three things: what you think interest rates will do in the future, how much monthly savings you'll enjoy, and how long you expect to be in your home.
Refinancing is not something you consider lightly because it can be expensive. The total cost of your loan can rise as much as five percent when you add the up-front fees and costs.
A good rule of thumb is to start looking into refinancing when interest rates drop 1 to 1 1/2 points below what you are already paying. The reason is that some lenders offer loans that cost little or nothing at all. As soon as interest rates drop blow your rate , start talking to your agent or loan broker.
Next figure out what you will pay up front. then calculate your savings. With these two numbers you can figure out how long it willl take to cover the cost of the new loan. For example, if refinancing costs you $5000 up front and saves you $200 a month in mortgage payments, it will take 25 months to cover your costs. If you are not planning to move for several years, refinancing makes alot of sense. If you are going to look for a new home in two years, you won't really be around long enough to reap the benefits. In fact you would lose money in this situation.
If you refinance today and rates drop even further in the next months, you will miss out on additional savings. If you refinance to save $10 to $20 off your mortgage payment then you will have to stay in your home forever to see it pay off.
Warning: The math is easy for fixed rate loans, not so easy when you are talking about ARMs. If you don't feel comfortable rumnning hte numbers yourself, ask your lender or Realtor for help.
Bryan VogtStrano & Associates, Realtors® - GMAC Real Estate
(618) 355-5824
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# posted by
Bryan Vogt @ 11:09 AM