How can I determine if I should refinance?
Traditionally,
the decision on whether or not to refinance has meant balancing the
savings of a lower monthly payment against the costs of refinancing. But
in recent years, lenders have introduced "no cost" and low-cost
refinancing packages that minimize or completely eliminate the
out-of-pocket expenses of refinancing. These refinancing packages many
times will compensate with a slightly higher interest rate, or by
including some of the costs in the amount that is financed. With
traditional refinancing, the most often cited rule-of-thumb is that
the interest rate for your new mortgage must be about 2 percentage points
below the rate of your current mortgage for refinancing to make sense.
However, with the newer low- and no-cost refinancing programs, it can be
worth your while to refinance to obtain a smaller reduction in interest
rates. How long you expect to stay in your home is also a factor to
consider. If you'll be moving in a few years, the month-to-month savings
may never add up to the costs that are involved in a refinancing.
Find out what the total cost of the
refinance is, then figure out how much you will save every month by
performing a cost analysis or have a mortgage professional at Landmark Mortgage prepare one for you. Divide
the total cost by the monthly savings to get the number of months you will
have to stay in the property to break-even on your refinancing costs.
Example: if your refinance costs $2,000 and you save $50/month your
break-even is 2000/50 = 40 months. You
should refinance if you plan to stay in the house for at least 40 months.
Landmark Mortgage
specializes in assisting individuals with obtaining a home loan whether for purchase or refinance.
We can advise you on the best
approach and help you get the house of your dreams!
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