Concern of the Housing Market

 Should you refinance your mortgage?       

Refinancing means to replace your current mortgage with the current interest rate with a new mortgage and lower interest rate! Taking advantage of a lower interest rate will reduce your monthly payment.  In short:

swapping out the old for a better new loan!

But wait - you always have to get educated first to make a smart decision:

Nothing is for free: so there is a cost for refinancing and it can take a couple months before you have paid off the cost with the savings.

·       The bank will charge a fee for processing the refinance and credit report.

·       You have to get a new title insurance, and if you have followed my articles, I mentioned that you can save money at time of refinancing if you have a title insurance in place.

·       The attorney for the bank or a title company also charges a fee for the closing.

·       There are also some costs which are partially refunded, like insurance and taxes.

·       And you need a new appraisal.

·       A total estimate of $4000-5000

The first question you have to ask yourself: “how long am I staying in the house”?

If the answer is less than two years: then refinancing is not a benefit.

If you have been able to increase your credit score substantially since applying for the original mortgage, you will have a benefit of getting an even better interest rate, and it can lower your monthly payment even more.

If the value of your house has gone up and you need to pay off some high interest credit cards – you can get “cash –out” refinance.  The new loan will be higher than the old loan and you will get cash to pay off higher interest debt.

This makes a lot of sense.

There are occasionally programs when a bank offers you a refinance of your remaining loan without closing cost. This is the best opportunity to save money –

go for it.   The government also offered a HARP program which helps you lower your interested rate without cost.  The end date to get a HARP refinance is September 30, 2017.  If you need more information go to www. Harp.gov  The loan limit is $300,000 and if you qualify: go for it.

If you have an adjustable mortgage, (which means the interest rate will change

periodically) and you can refinance into a fixed rate mortgage (which means the interest stays the same for the rest of the term) this is a good reason to refinance and an advantage most of the time. 

Also if you have a FHA loan, which requires a mortgage insurance for the life of the loan – you are not only getting the lower interest rate but also get rid of the insurance premium each month.

Let’s assume you got a mortgage 15 years ago for $200,000 with 6% interest and you are thinking of refinancing:

Your principle and interest payments would be $1199 per month and the loan would be paid off in 2032.

You decide to refinance the remaining $150,000 with a 4% interest loan without mortgage insurance.  The new principle interest would be $716 – but your loan would not be paid off until 2047.  The difference of $483 every month has to pay off the cost of refinancing first being $4000-5000 – so after the first year you would safe this amount every month – but you are paying the loan off 15 years later.   That translates that you would pay $215,830 during the next 15 years for the original loan and $257,760 for the refinanced loan over the next 30 years.  But if you are considering selling the property in five- six years: Refinancing is the answer!

If you want the refinance for a 15 year loan to keep the payoff in 2032, your monthly payments would be $1109 – the $90 saving would take you 4 years to recover the closing expenses and the monthly savings are minimal.

So once you have educated yourself about your options, talk to a lender and CPA to verify that you are making a good financial decision.