After our blog post last week, we received a lot of questions regarding refinancing. As we reminded you last week, there are so many factors to take into consideration. This is because every situation is different – including a homeowners future plans, financial situation, etc. Unfortunately there is no rulebook available out there to help you with your decision. You have to truly figure out what works best for you and our family. We will give you some ideas to take into consideration, though.
To start, will the new mortgage rate be decreased by at least 2%? This is a very conservation way to think but you would save a significant amount of money. There are possibilities that you will save a lot of money by even just a 1% lower rate. You really need to do the math and figure out what the savings would be. For example, if your loan is $500,000 and the rate is 1% lower, you will be saving more money from someone who has a $150,000 loan. The decrease may be beneficial for the person with the $150,000 loan as we do not know their financial situation. But we wanted to clearly point out how different every situation is and how 1% to one person can be different from one person to another.
We also want to remind you to read the fine print! There may be fees, especially for smaller loans, in closing cost that may outweigh what you will potentially save. If that is the case, there is no logical reason to refinance.
Something else to consider is the term of the loan. This does wind up boiling down to how much of a savings you would ultimately receive from it. If your mortgage as originally a thirty-year and you are looking to refinance to a ten year, how much of savings will you be making?
We hope that these specific examples have reminded you of how important it is to look at each situation on a case-by-case basis. If you would like to discuss your specific case with us, we would be happy to.