Does refinancing make cents?
As we all have heard on the radio, seen on television and read in the newspaper home mortgage interest rates have fallen again. Thirty year fixed rate mortgages have been below six percent and five year adjustable rate mortgages have been as low as five percent.
I have had call after call from both past clients and from potential new clients wanting to know if refinancing their current mortgage would be advisable. They want to know how much their monthly payment will decrease; they want to know how long it will take to complete the process. They want to know how much it will cost them to refinance. They want to know if they should roll into the mortgage other debts. And they want to know how long it will take them to recoup the refinance costs.
So if you are interested in learning if a refinance is in your best interests here is what information you need to have in front of you. The most important piece of paper is your current mortgage statement. On that form there should be a current mortgage balance and the current interest rate. The next thing you need is an approximate value on the home. This can be an educated guess but we do need a starting figure. We also need a list of other debts that you may want to consider paying off from the equity in your home.
Now we need to look at Loan to Value percentages. As an example Mr. Charles Stake has a home that is valued at $455,000.00. His current mortgage amount is $317,000.00. So divide the mortgage amount by the value of the home and we have a sixty nine percent loan to value.
Chuck is considering taking out some additional cash to pay of a small second mortgage and he wants to also pay off a credit card that has a $9,500.00 balance. All of this adds up to $350,000.00 and this figure includes all of the costs associated with the refinance. So we now have a Loan to Value of seventy six percent.
Now we look at Frank’s gross income and based on those figures we are well with in set guidelines of a ratio that is Debt to Income. Frank makes a decent income and since we are paying off a high interest credit card and reducing his mortgage interest rate his payment is actually about the same as before the refinance but he now does not pay for the second mortgage and the Credit card. So his out of pocket expenses have decreased with the refinance.
As to the costs involved in the refinance he is looking at approximately $2,000.00 in fees. The refinance reduced his payment by $180.00 a month as I compared the old payment to the new payment at the initial loan amount. His payback period is a little less than twelve months and if you also consider that the second mortgage payment and the credit card payment are now gone his payback period is actually much less.
So the refinance for Chuck Stake is very cost effective and does make cents for him. To learn if a refinance makes cents for you call your friendly neighborhood mortgage professional before rates go back up. Don’t wait.
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