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Refinancing Your Mortgage Can Be A Smart Move
If you've had the unpleasant experience of refinancing your mortgage you know that there's nothing fun about it. Paperwork by the ton to fill out, followed by a shopping list of lender fees, and you have the recipe for a very laborious and costly process. As much of a pain as refinancing can be, there are times when refinancing your mortgage will be a smart move.
With current interest rates the past few years hovering at or around historical lows, thousands of homeowners have refinanced their mortgage to take advantage of these low rates, and to reduce the amount of their monthly mortgage payment. Depending on the interest rate of your old mortgage, these new rates can potentially save you hundreds of dollars per month, and many thousands of dollars in interest over the term of your loan.
These low interest rates also make it a great time to consider refinancing your adjustable rate mortgage. Why take the chance of interest rates going up in the future, when you can lock in a lower rate with a fixed rate mortgage, and sleep good no matter how high interest rates may go.
Perhaps, you financed your home with a balloon mortgage, and will eventually be forced to refinance, or sell before the balloon payment comes due. It may be a better idea to refinance your mortgage now while rates are low.
Many people refinance their mortgages because they have substantial equity, and need some cash. Low interest rates make this a great time to refinance the amount currently owed, along with the additional funds they need.
When considering refinancing, remember; refinancing a mortgage is not free. While it is possible that should you refinance with your current lender you may receive a break on some charges, there are still several thousand dollars in fees to pay. That's right, several thousand! Don't forget the necessary closing costs that come with refinancing.
So, when do you start saving money? This depends on how long you remain in the home after refinancing, as well as how big a difference between the old interest rate and the new interest rate. The longer you remain in the home, and the bigger the difference in interest rate, the quicker you will begin to save.
As an example, say your current mortgage is $1,400 per month. Should you refinance, your new mortgage payment will be $1,100. That's a monthly savings of $300.
Now, keep in mind that by lowering your mortgage interest payment you are also lowering the deductible amount on your tax return. You must reduce your monthly savings by the amount lost in tax write-offs.
For example, if you were in the 25 percent tax bracket, your monthly savings is reduced by $75 ($300 X 25% = $75). This means your actual monthly savings would be $225, and not $300.
How do you know when your break even point will be? Easy, simply divide the closing costs by the true amount of your monthly savings. If your closing costs were $4,500: Take $4,500. divide it by $225 and your break even point would come in 20 months.
Carl DiNello is an Article Author, Researcher, and Wesbite Owner whose articles are featured on websites covering the Internets most popular topics.
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