You should regularly check for mortgage refinancing opportunities
If you have a mortgage, you should always be on the lookout for refinancing opportunities. In other words, you should regularly check whether refinancing at a lower rate will benefit you. This is one of those simple things that many overlook because they get too busy.
The important factors in the mortgage refinancing decision are:
- How much of your mortgage you have outstanding.
- The difference between your mortgage/loan rates and the refinancing rate.
- Whether you are are refinancing in order to consolidate high-interest credit card debt.
- How much longer you intend to remain in your home.
Some general guidelines are:
- Refinancing is usually not helpful if you intend to sell your home in less than 4-5 years. This is because you will not make back your refinancing costs.
- If the current interest rates for your new loan are not much lower (at least 2% lower) than your mortgage rates, financing may not be of benefit.
- Refinancing may be more attractive if you are refinancing to consolidate high interest credit cards
You should use any savings from refinancing as an opportunity to boost personal savings.
Some examples are:
If your 30yr mortgage on a $200,000 house is $1,682/month at an 6% rate ($4,000 annual property taxes, $800 insurance, PMI $83/month).
Total paid would be: $587,343.
After 5 years, the mortgage balance is $187,431.
If refinanced after 5 years at 4.5%, payments would be $1,373 per month (reduced to $1,294 in 9 years, when PMI is dropped. You will save approximately $11,080 over the mortgage period.
Useful our refinance calculator here to help you determine whether you should refinance. Remember to consult your financial adviser.
