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Thursday, October 9, 2014

Now that rates have fallen, HOW should I refinance my home loan?

Refinance today before rates go up!
It's an interesting study just completed and the findings released.  The average age of a refinanced loan is now 7.3 years, up two years from what it was last year and 3 times as long as the latest 10 year average.  In other words, there are over $800 million in mortgage loans today which have a higher than 5% interest rate!  Yours may be one of them.

With current 30 year rates hovering near 4% and 15 year at 3.5%, there can be substantial savings associated with refinancing.

But what about the cost associated with refinancing?
Does a homeowner REALLY need to save 1% on their mortgage to justify doing a refinance?
Why is 1% savings the "magic" number?

There are two ways to look at doing a refinance; 1) the rule of thumb 1% savings in interest rate, and 2) ZERO closing cost refinance-PURE savings because all you are doing is lowering your interest rate.

Rule of thumb: 1% lower rate
My typical analysis is to figure out how quickly closing costs will be recouped and this is called the break even point.  Rule of thumb is that 36-60 months to "break even" or to recoup your closing costs is an excellent measuring tool to make sure you are making a good decision on refinancing.

I think the rule of thumb is an excellent time frame because most homeowners can see 3 to 5 years into the future and make sure that they  will be in their home long enough to pay back any closing costs associated with refinancing.  The homeowner doesn't need a 1% savings to justify refinancing, but DOES need to see a NET BENEFIT over time (whatever their time frame is for anticipated ownership of the home).

This refinance, WITH closing costs, CAN be the best way to go, but wait...there is another option...

ZERO closing cost refinance option
What if we look at refinancing with ZERO closing costs and just worry about lowering the interest rate?  This is PURE savings: Lower the rate, don't add anything to the loan balance!  Throw out the break even analysis with this weeks trash!

What if all you were concerned about was lowering your interest rate, and you COULD get quickly and easily qualified for a refinance loan (mortgage rules and guidelines ARE now very straight forward) because homeowners with equity in their home, stable jobs, 2 months of payments in their bank account after closing, and good credit ARE able to easily and quickly close on their refinance loan!

A no cost refinance will lower your rate, save interest dollars, and doesn't add anything to your current balance, You can even continue to make the same payments you currently have on your mortgage AFTER your refinance and pay off your mortgage MUCH sooner!

What's not to like about refinancing?
When you want a lower interest rate, there is a cost associated with this.  Points and fees are associated with lower mortgage rates.  When you get charged closing costs you get a lower rate. This is a benefit for the long term.

With the NO closing costs, expect to see .125% in higher rate for loans over $400,000 and .25% in higher rate for balances above $250,000.  Nothing added to your balance and shorten the term on your mortgage loan (if you continue to make your "old" mortgage payment after refinancing).

Call me today for a refinance analysis that could help you save interest dollars and help you to
accumulate more savings, create money for your 401k balnce, growth stock mutual funds, IRA's, or payoff your mortgage quicker!