Mortgage interest rates are lower than they have been for some time yet the latest employment outlook, which has an impact on interest rates, is still bleak. This can make deciding whether to refinance your Washington, D.C.-area home a difficult decision. There are several factors you need to consider.
One of the most important aspects of refinancing you will need to evaluate is how much you will actually save by refinancing your mortgage. As a rule, the interest rate for your new loan should be at least two percentage points lower than the rate on your current loan. You also need to think about how long you plan to stay in your current home. If you decide to refinance, you will need to stay in your current home long enough to at least break even on your savings with respect to the cost of refinancing. Remember, refinancing involves closing costs, and possibly points, just as you incurred when you obtained your original mortgage. The following is an example of how to calculate your cost to refinance.
Yahoo Finance offers this example: If you had a $200,000 30-year mortgage with an 8% interest rate, your monthly payment would be $1,468. If you refinanced at 6%, your new monthly payment would be $1,199, a savings of $269 per month. Assuming that your new closing costs amounted to $2,000, it would take eight months to break even. ($269 x 8 = $2,152). If you planned to stay in your home for at least eight more months, then a refinance would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing.
You will also want to be aware of current interest rates. According to The Wall Street Journal, current mortgage interest rates are:
30-Year Fixed - 4.87%
15-Year Fixed - 4.24%
5/1 ARM - 3.53%
30-Year Fixed Jumbo - 5.46%
30-Year FHA - 4.69%
You also need to keep in mind that because of the gloomy unemployment news, consumers are less likely to make purchases, especially large long-term ones such as homes. With less demand for homes and home loans, interest rates may become lower but may also shoot up. There is a large degree of uncertainty right now, which wreaks havoc on interest-rate fluctuations.
There are also other things to contemplate when making a refinance decision. The term of the mortgage will determine whether you make higher monthly, lower interest, shorter-term payments or lower monthly, higher interest, longer-term payments. This directly effects how much interest you pay and thus how much the loan will cost in terms of interest. A variable-rate mortgage (ARM) as opposed to a fixed-rate mortgage will also make a difference in how much interest you will pay over the term of the loan.
Refinancing your DC-area home is a major decision. You need to carefully consider such things as what your savings will be, current interest rates, and economic and real estate market trends. Need help? Rachel Valentino and her team of DC-area real estate experts are happy to put you in touch with competitive and trustworthy local lenders who will help you make your refinance decision. Believe me -- I understand. Dealing with loans and trying to decipher what option makes the most sense for your household can be difficult, EXTREMELY confusing, and downright scary....but don't let that interfere with the significant savings you could be accumulating each month. Reach out to us & let us put you in touch with our go-to professionals with a history of competence, empathy & competitiveness.
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