With mortgage interest rates lower than they have been in a long time, many homeowners in the Norman, Oklahoma area, and elsewhere, are trying to determine if now would be a good time to refinance. If you are a home owner considering this option, you need to think long-term when you refinance your Norman home.
As a rule, it's a good idea to refinance if you plan to stay in your Norman-area home long enough to warrant the closing costs. You will also want to wait until rates are at least one percent below your current mortgage interest rate.
How do you determine whether you can justify the closing costs of refinancing? You'll, of course, need to know how much the closing costs are. Asking potential lenders is a great way to learn this information. Normally, closing costs are about three to six percent of the loan amount. Closing costs can be folded into the loan.
Another thing to consider is the current mortgage payment on your Norman-area home. You'll also need an idea of what your new payment will be. Again, your potential lenders can tell you this. How long do you plan to stay in your home? If you're thinking about moving within a year or two, refinancing may not be a good option. To help you calculate your savings, many banks have an online mortgage payment calculator on their websites.
Here's an example of how to determine your savings:
|Closing Costs for New Loan||4% or $8,000|
|Current Mortgage||6% or $1,199 per month|
|New Mortgage||5% or $1,074 per month|
With a monthly savings of $125, you need to determine how long it will take for that $125 to add up to your $8,000 closing costs. In this case, it will take 64 months (more than 5 years) to cover your closing costs. If you are not planning to stay in your home that long, refinancing may not make sense. On the other hand, if you stay in your home for another 10 years, you'll have saved $7,000 ($125 x 120 months [ten years] less $8,000 [closing costs]).
The important thing to remember is that you shouldn't refinance your home just because it seems like everyone else is doing it. Refinancing your home should be something you do because it makes economic sense for you.