Before considering refinancing your home, consider the true cost of pulling the equity out of your home. I have often counseled my clients by telling them to never refinance your home but instead look at alternate options for obtaining funds.
For example you have owned your $200,000 home for four years (original value $230,000) and have $50,000 equity in your home, your current interest rate is 4.5%. Your current home's value is $250,000
Currently you have paid $34,819 in interest, $13,823 in principal leaving a balance of $186,823 on your mortgage with a September 2038 with a monthly loan payment of $1,013.37.
If you refinance your home pulling out $50,000 from your $250,000 will cost you…
Loan amount: $250,000
Term: 30 years
Payment at 4.5%: $1,266.71
Cost of two points $5,000
Payment at 4%: $1,193.54
Monthly savings: $83.33
Break-even point: 60 months ($5,000 divided by $83.33)
Your new loan payment $1,193.54 (Not a lot, correct?)
WRONG!!!
Your total costs of refinancing.
Interest already paid - $34,819.10
2 Points - $5,000
Future Interest - $179,673.77
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Total Interest Paid - $219,492.87 after 30 years of loyal payments.
Yep you got it --- you gave away nearly $40,000.
Simple rule DON'T REFINANCE YOUR HOME... CALL ME AND I WILL PUT YOU ON THE RIGHT PATH TO SAVING YOUR MONEY.
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