Recently, the #1 question that I have been asked is, "Should I refinance my property while rates are low?"
How can you tell if the benefits of the monthly savings out weigh the cost? As I am fond of using actual figures to demonstrate my view point, please allow me to explain how to calculate the "real" savings.
For example, let's say you currently have loan in the amount of $400,000.00 at 6.5%. Starting with this assumption, we can guesstimate the following based on today's rates:
1) Current Loan = $400,000.00 @ 6.5% = $2,528.27/month
2) New 0 Point - 0 Cost Loan = $404,000.00 @ 5.75% = $2,357.63/month
a. Monthly savings of $170.64
b. Return on investment = 23 months (about 2 years)
3) New 1 Point - 0 Cost Loan = $408,000.00 @ 5.375% = $2,284.68/month
a. Monthly savings of $243.59
b. Return on investment = 33 months (about 2 ¾ years)
What does all of this mean? If you still have equity in your house and you wish to lower your payment, doing a 0 cost refinance may be a viable option for you. If your main concern is the monthly savings, you may even consider paying a point or two.
Feel free to contact me if you have specific questions or would like a further explanation.
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