When Thinking about Refinancing Your Mortgage, make sure you know the Cost vs Savings!

By
Mortgage and Lending with www.DaveYourMortgageGuy.com - Legend Lending NMLS #293883
https://activerain.com/droplet/kpK

 

Over time, I have heard many explanations on what someone thinks is the benefit of refinancing their mortgage.   Some examples are “it doesn’t make sense unless i get a rate 2% lower”, “I don’t care as long as the payment is less”, etc.  The real key to a successful refinancing is actually knowing the cost vs the savings of your new loan. 

 

When going from a 30yr mortgage to a new 30yr mortgage(15yr to 15yr, etc) you want to divide the cost of the new  loan by your monthly savings.  So let’s say on your $200k loan you have a rate of 5.5% and are going to refinance to a rate of 4.25%.  Just based on the principle and interest part, you are saving $151 a month.  Lets say that the closing cost on your loan is $3500, this would include the lender fees, title company fees, appraisal fee, etc.  When you divide the closing costs by your savings, it would take you 23 months to recoup the cost of the new loan.  Which is great.  A general rule of thumb, is if you can recoup your costs within 36mths it is a good refinance.  But, it really depends on your financial goals and how long you plan on living in the home. 

 

Keep in mind, the above example is just a general estimate so you can get the concept.  You also want to take in to account other benefits, such as: getting cash out of your loan, removing mortgage insurance, reducing the term of your loan,etc  Reducing the term of your loan would include going from a 30yr mortgage to a 15yr mortgage.   Or you could also look at doing the opposite and go from a 30yr mortgage to a 15yr. 

 

Everyone has an idea of what the benefit of refinancing should be, but make sure when you are refinancing you are comparing the cost of your new loan vs the savings.  

 

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David Krichmar 

Mortgage Banker NMLS#293883 

Legend Home Lending

LLC NMLS #229421

Has Written For Realtor Magazine, Houston Agent Magazine, Scotsman Mortgage Guide

Appeared On Fox Business

 

Named 5 Star Mortgage Professional 2013, 2014, 2015, 2016, 2017

Named Top Mortgage Professional 2010,2011

Office:832-689-6012

Dave@DaveYourMortgageGuy.com

www.DaveYourMortgageGuy.com

For More Mortgage Info Follow me at  Dave's Blog

 

If you are looking for a FHA, VA, USDA, Homepath, Conventional, Jumbo, Construction, FHA 203k mortgage in Fort Bend County, Sugar Land, Houston, Katy, Harris County, Brazoria County, Pearland, Richmond, Bellaire, West University, The Woodlands, Kingwood, Friendswood, Clear Lake, Galveston, Fulshear, Tomball, Spring, Conroe, Montgomery County or anywhere in Texas I am your GUY!  

 

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Rainer
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Marjorie Dybec
Douglas Elliman - New York, NY

Very succinct and helpful way of explaining this puzzle to the consumer. Bravo.

Sep 29, 2011 03:23 AM #1
Rainmaker
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David Krichmar
www.DaveYourMortgageGuy.com - Legend Lending - Sugar Land, TX
DaveYourMortgageGuy.com

Thank you Marjorie for the very nice comment!

Sep 29, 2011 03:32 AM #2
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Dave: Thanks for pointing this out. This is great information for the consumer! Thanks again!

Oct 03, 2011 05:58 AM #3
Rainmaker
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David Krichmar
www.DaveYourMortgageGuy.com - Legend Lending - Sugar Land, TX
DaveYourMortgageGuy.com

Thanks Paul!

Oct 03, 2011 06:02 AM #4
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Rainmaker
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David Krichmar

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