You’ve probably heard news stories and advertisements about how low interest rates are for mortgages right now. And it’s true, they are the lowest they’ve been in decades. Refinancing your mortgage with a lower rate is a great way to lower your monthly payment.
It also makes sense for long-term savings. Refinancing and lowering your mortgage rate by as little as 1% will save you thousands of dollars over the term of the loan.
For example, let’s say you have a $175,000 mortgage loan balance, on a 30-year term, at a rate of 5%. If you refinance the loan at a rate of 4% you will save $103.96 per month on the monthly payment. That adds up to a total savings of $37,425.60 over the 30 year term of the loan.
This sounds like a great plan, but there are many factors to consider before you refinance. Be sure that you qualify for a refinance. If you owe more on your mortgage than the property is worth, the financial institution may not be willing to refinance. You should also find out if your current loan has a prepayment penalty. Determining your break-even point is also important. That’s the length of time you plan to keep the home after refinancing versus how long it will take to recover your closing costs.
For example, if you pay $2,000 in closing costs and you manage to lower your mortgage payments by $100 a month, you would reach the break-even point in 20 months. As long as you plan to live in the home longer than 20 months, the refinance should be worthwhile. However, if you plan to sell the home before you break-even, you may not want to refinance, because you won’t be able to recoup those closing costs.
You should also be sure to shop and compare your loan products rather than shopping for only the lower rate. The rate may be low, however there might be many costs involved with the refinance such as points, origination, and application fees. All of these extra costs can increase the loan balance. If these costs are larger than any savings, the refinance may not be worth it.
If you think that refinancing will be beneficial for you, now is a great time to visit your local SECU branch in Santa Fe, Albuquerque, Las Vegas, Los Lunas or Belen to find out how much money you can save.