Determine Whether Or Not You Should Refinance
Rates on a 30 year loan are at historic lows. In fact the interest rate on a 30 year loan is lower than it has been in the past forty years. Along with this low interest rate comes gigantic opportunity for property owners to decrease their loan payments. Determining whether or not it makes sense to refinance is dependent on your unique situation, as well as how much money you will save in comparison to the new costs. The analysis is a relatively simple, but you should understand the procedure so that you can benefit from refinancing.
When trying to decide if refinancing your mortgage is a good idea, you first need to look at what you owe and how much you pay each month. Then you need to evaluate the costs and payment associated with the new loan. If refinancing will reduce your payment and not add years or significant cost, then the refinancing your mortgage makes sense.
The simplest way to see if refinancing your mortgage makes sense from a quantitative point of view is to make a list that includes your payoff, your monthly payment, and the number of payments that have yet to be made. Multiply the number of left over payments by your current mortgage payment each month and record this number.
Under the previous number record the amount that you need to refinance, the period for the new loan, and the approximate mortgage payment. You can do all of these calculations quickly with a spreadsheet, or downloadable mortgage calculator. Make sure that you take into account the costs to refinance when doing your calculations, as well as origination fees, appraisal fees and transfer and escrow costs. Now repeat the same calculation as before, multiply the total number of payments by the monthly payment amount.
If you are updating your mortgage, but not pulling out any equity, the refinance makes the most common sense if you can lower your periodic payment, and if the entire amount paid (number of payments multiplied by the monthly payment) after the refinance is lower than the complete amount to be of the payoff your current mortgage. If the periodic payment is lower than your current payment, but the full amount is more, you have to decide if paying lower monthly outweighs the greater amount you will need to disburse. The opposite decision is needed if your payment increases but the entire amount due decreases. In either case, check your calculations carefully as you come to a decision.
One thing to remember with the above calculations is that the money refinanced must equal your existing mortgage. If the refinance amount exceeds the amount presently due on the mortgage then a much more complicated analysis is desirable. For this type of analysis, you will need a spread sheet with present value and amortization calculations. If you are not comfortable with these types of calculations, consult a financial adviser or accountant to assist with quantifying your decision.
When trying to decide if refinancing your mortgage is a good idea, you first need to look at what you owe and how much you pay each month. Then you need to evaluate the costs and payment associated with the new loan. If refinancing will reduce your payment and not add years or significant cost, then the refinancing your mortgage makes sense.
The simplest way to see if refinancing your mortgage makes sense from a quantitative point of view is to make a list that includes your payoff, your monthly payment, and the number of payments that have yet to be made. Multiply the number of left over payments by your current mortgage payment each month and record this number.
Under the previous number record the amount that you need to refinance, the period for the new loan, and the approximate mortgage payment. You can do all of these calculations quickly with a spreadsheet, or downloadable mortgage calculator. Make sure that you take into account the costs to refinance when doing your calculations, as well as origination fees, appraisal fees and transfer and escrow costs. Now repeat the same calculation as before, multiply the total number of payments by the monthly payment amount.
If you are updating your mortgage, but not pulling out any equity, the refinance makes the most common sense if you can lower your periodic payment, and if the entire amount paid (number of payments multiplied by the monthly payment) after the refinance is lower than the complete amount to be of the payoff your current mortgage. If the periodic payment is lower than your current payment, but the full amount is more, you have to decide if paying lower monthly outweighs the greater amount you will need to disburse. The opposite decision is needed if your payment increases but the entire amount due decreases. In either case, check your calculations carefully as you come to a decision.
One thing to remember with the above calculations is that the money refinanced must equal your existing mortgage. If the refinance amount exceeds the amount presently due on the mortgage then a much more complicated analysis is desirable. For this type of analysis, you will need a spread sheet with present value and amortization calculations. If you are not comfortable with these types of calculations, consult a financial adviser or accountant to assist with quantifying your decision.