Does refinancing your mortgage in the current market hold value?
With interest rates going down, many homeowners are looking into options of a low interest refinance. Due to foreclosure and short sales, home values have gone down. However, if you are in a position where you have equity in your home, it is a good idea to evaluate your rate options.
According to an article written by Ruth Mantell, “30-year fixed-rate mortgage falls to 4.63%”on marketwatch.com, the average rate for a 30-year fixed mortgage is down to 4.63%. Last year this average rate was at 4.93%. These rates have factored in .7 points in closing costs. This rate drop can be attributed partly to the employment report.
If you are considering a look at your rate options with the banks, now may be a good time to see where you stand. Some say that you should not refinance until the rate drops a percent below what your current rate is. This is not always the case. A refinance can still make sense depending on when you can recoup the money you will pay for closing costs for your loan. As stated above, with closing costs at .7 points, where 1 point is 1 percent of the mortgage loan amount, you want to look into when you will break even on the cost for securing your loan. The best way to calculate this is to take the mortgage fees divided by the monthly savings to see when you will break even. If you know how long you will be staying in the home, and figure out how many years it will take to break even; you may find in the long run it is worth refinancing even if you are not dropping your current interest rate by 1%.
There are many sites that have mortgage calculators that provide you detailed information on monthly payment, interest rate, and taxes and insurance. On CNN Money there is an easy to use mortgage calculator that will guide you through payment depending on what rate you are qualified for. So first you will want to speak to a mortgage loan officer and determine what rate you are pre-qualified for so that you can plug this information into the calculator. This is a great way to see what your monthly savings will be to determine what the break-even point for the cost will be. You can also plug in an interest rate that is lower than what you currently have on your mortgage and take a look at what your potential payments may be, this may be a step you could take before speaking with a mortgage lender.
Making the decision to seek your rate options is another vital way to see where you can save money.
Also, when forecasting your retirement, dropping the interest rate or even shortening your term with a low interest rate, may get you on track with your retirement goals. With mortgage rates still relatively low it is a good time to crunch some numbers to see if your rate options are worth moving forward with a refinance. If it makes sense it makes sense.