What Are Some Smart Ways to Refinance?
Recently, fixed mortgages were near their
lowest rates in almost 30 years. And if you
are one of the many people who took out
mortgages in the few years prior to that,
you may be wondering if you should look into
refinancing.
If your mortgage was taken out within the
past five years, it may be worthwhile to
refinance if you can get financing that is
at least one to two points lower than your
current interest rate. You should plan on
staying in the house long enough to pay off
the loan transaction charges (points, title
insurance, attorney’s fees, etc.).
A fixed-rate mortgage could be your best bet
if you plan to stay in the house for several
years, because interest rates may continue
to rise. An adjustable mortgage may suit you
if you will be moving within a few years.
One way to use mortgage refinancing to your
advantage is to take out a new mortgage for
the same duration as your old mortgage. The
lower interest rate will result in lower
monthly payments.
For example, if you took out a $150,000
30-year fixed-rate mortgage at 9 percent
(including transaction charges), your
monthly payment is now $1,206.93. Refinance
at 7.5 percent with a 30-year fixed-rate
mortgage of $150,000 (including transaction
fees), and your payment will be $1,042.82
per month. That’s a savings of $158 per
month which you can then use to invest, add
to your retirement fund, or do with it
whatever you please.
Another option is to exchange your old
mortgage for a shorter-term loan. Your
30-year fixed-rate payment on a $150,000
loan was $1,206.93 per month. If you
refinance with a 15-year fixed mortgage for
$150,000 — including transaction costs — at
7.5 percent, your monthly payment will be
$1,390.52. This payment is only $184 more
than your previous mortgage, but your home
will be fully paid for several years sooner,
for a savings of more than $150,000! And
some banks around the country are beginning
to offer 10- and 20-year mortgages.
Either way you look at it, it’s an
attractive idea.
If you’re considering refinancing your
mortgage, consult your financial advisor and
determine whether refinancing your home
would be a good move for you.
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