Is It The Right Time To Refinance?
When considering a rate and term refinance and whether it is right for you, you need to know how much you are saving per month after the refinance, how much your closing costs are, and how long you plan on being in the house. Once you have this information, you can determine if a refinance is right for you.
The table below is based on a scenario where we are refinancing a $200,000 mortgage with a 5.25% interest rate. We are assuming $4000 in closing costs that are being financed in the new loan. You can also choose to pay this at closing and not finance it but many people choose to roll the costs into a new loan amount in order to minimize the money they pay out of their own pocket.
As you can see, we are saving exactly $100 each month and it cost us $4000 to refinance. It will take us 40 months or 3 years and 4 months to recoup the closing costs via the monthly savings. If we were planning on remaining in the home for 4 years this refinance would benefit us as we would have recouped all of our costs just after the third year in the home and continue to save $100 each month after. If we were only planning on staying in the home 2 years, we would not recoup all of the closing costs. While we are saving $100 each month, it would not benefit us in the long run to refinance if we were only remaining in the home for 2 years as we would only recoup $2400 of the $4000 closing costs.
The simple formula for determining if refinancing is right for you is to divide your closing costs by your monthly savings. This will give you the months needed to recoup the closing costs. As long as you plan on being in the home longer than it takes to recoup the closing costs, a refinance will benefit you in the short term in the form of monthly savings and continued long term savings once the closing costs are recouped.
Mortgages Unlimited is a local mortgage company serving not only the Twin Cities but also, South Dakota and Wisconsin. We work on the behalf of our clients ensuring they are getting the best possible loan while providing outstanding customer service.
Give one of our Mortgage Consultants a call @ 763-416-2600 if you are looking to purchase a home or refinance your existing home loan. Or you start a secure online application at www.muiapply.com.
