The Price of Refinancing
When you want to take advantage of lower interest rates, change the type of mortgage you have, or access equity on your home, you may ask yourself, “How much will I save by refinancing?“.
Refinancing involves getting a new loan, with different terms, to replace your original one. You can use your existing mortgage lender or use a new one, depending on what each has to offer.
Even though interest rates have started to creep up over the last while, refinancing could be a great financial move – in some cases. Remember that refinancing is the process of getting a new mortgage, and with that comes many of the costs involved in obtaining your original one. These can include legal expenses, title insurance, a home appraisal, various taxes, and transfer fees.
Therefore, when you are thinking about refinancing, it is crucial that you calculate whether or not the savings from a lower interest rate or other changes will eventually offset the upfront costs you will encounter.
How Much Will I Save by Refinancing?
The simplest and quickest way to get an idea when you will see the benefit of refinancing is to speak with a loan officer. An online refinance calculator can only determine when you recoup your costs based on the numbers you enter. And if you are driven by curiosity, the numbers you input may not be accurate for your situation. Also, your closing costs will vary based on your interest rate. For example, if you want the lowest interest rate possible, then your closing costs could be somewhat higher.
Chatting with Your Mortgage Lender
If you want a more accurate determination of how much will I save by refinancing , then your best bet is to sit down with a mortgage lender to get a ballpark figure. Contact Shamrock Financial to discuss your numbers and options to answer “How much will I save by refinancing?”.
As part of your discussion, you will talk about the length of time left on your mortgage and whether you want to change it, as this can also affect your break even point.
How does it work? Let’s say you paid $145,000 for your home with a monthly payment of $916 and an interest rate of 6.5%, and there are seven years left. With this schedule, you are only paying $206 towards your principal each month, while $710 goes to interest. That means you still owe $130,897.
As interest rates are now lower at 5%, you decide to refinance for the same term. Your new monthly payment has been reduced to $799, and your closing costs for the refinance are $2000.
This move means that you are saving $117 every month and even better, your lower interest rate means more of your hard-earned dollars – $254 – is used towards your principal, while less – $545 – goes towards paying interest.
Even though you start to see savings right away, you have not yet ahead due to your closing costs. In fact, it will take you about 17 months before you recoup that $2,000, at which point you are truly ahead of the game.
By the Numbers
Taking advantage of lower interest rates is a great reason to refinance, but there are other factors you need to consider to make sure the whole process is in your best financial interest. Determining how much your home is worth, how much you will need to pay in closing costs to refinance, and how long it will take to break even will let you know whether refinancing is for you.
Contact one of the professionals at Shamrock Financial to discuss the details of your particular situation and find a solution that meets your financial goals. You can also download the free FHA (203k) Fact Sheet to see if you qualify for an FHA loan to repair your home. If you do your homework, then the answer to “How much can I save by refinancing?” could be just around the corner.