Refinancing is the first thought on the minds of many people when noticing falling mortgage fixed rates, but often forgetting to consider loan origination fees and closing costs.
If you were to spend $ 18,000 on closing costs and amortize that expense in just 36 months, for example, you would be paying an additional $ 500 per month on top of your mortgage. This example assumes that after 36 months, you would either sell your property or refinance it.
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On a $ 1 million 30-year loan, for example, a 0.75 percent reduction in the interest rate from 5 percent to 4.25 percent would reduce your monthly payment by $ 449.
Of course, the analysis changes dramatically when you keep that loan for five or six years, amortizing costs over a much longer period. The longer you keep the loan, the higher the monthly benefit will be. Of course, as a reminder, the less interest you pay, the less you will pay off taxes.
There are many reasons why people refinance, apart from reducing their payment or saving on interest. Perhaps it started with an adjustable rate mortgage because it anticipated that rates would drop, and in fact they have. Now you just need to know when to set your fixed rate, and hope rates won’t drop further later. That said, it is better that rates go down rather than waiting too long and seeing them go up.
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Another reason why people refinance is to take capital out of their home for any number of reasons, including the divorce settlement; pay the selling partner; withdraw cash to remodel and improve the home: finance a college education; daily living costs; travel and entertainment; and financing of commercial ventures.
In some cases, you can refinance up to 80 percent. In good times, there can be multiple opportunities to do so and opportunities to lower your interest rate at the same time. Consult with a financial advisor to do multiple calculations and shop with a highly respected mortgage broker for good answers to your questions and reliable guidance. You don’t want to wait too long, go too soon, or extract too much of your assets unless you have a well-planned strategy.
Refinancing requires good credit and income qualification in most cases. Be wary of lump-sum hard-money loans and higher interest rates offered to borrowers with no qualified income and poor credit scores. Always do your homework.
Ron Wynn has been in the Top 100 Agents in the United States for over 10 years, as noted in the REAL Trends / Wall Street Journal. Ron has represented more than 2,200 sales totaling more than $ 1.5 billion in sales volume in his more than 30-year career as a real estate broker in California.
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