My phone has been ringing off the hook from home owners asking me if it is a good time to refinance their existing home.  For many of my clients the answer is YES and they should refinance especially since many of the mortgage loans available offer a fixed interest rate ranging between 4.5% to 5.5%.  However, there is a large segment of clients who should not refinance.  

If you are thinking about refinancing I would like for you to consider a few questions BEFORE you contact a mortgage lender:

  1. Do you plan on staying in your home long enough to see the long term benefit of refinancing?
  2. Do you have the necessary equity and will your home appraise high enough to support refinancing?
  3. Do you have the cash in savings for the closing costs that are associated with refinancing?
  4. If you are planning on adding the refinance closing costs on top of your existing loan balance, how long will it take for you to recoup these added costs and get your loan balance back to where it is today?  
Most people want to refinance for one of two reasons:
  1. They want to shorten their loan balance and pay the home off sooner which is a great reason.  Taking your existing 30 year amortization and refinancing to pay it off in 15 years is a powerful way to build equity quickly.
  2. They want to reduce their monthly payment at the cost of starting a 30 year loan all over again.  You can reduce your monthly payment with this method but typically you are going backwards and lose equity for at least a couple of years until the savings from the refinance get you back to where you were prior to the refinance.
Here is one of the quickest ways to determine how many months it will take before the cost of refinancing is beneficial and I have created a basic example: 

  1. If you are refinancing a fairly new home loan that has an existing 6.5% fixed rate 30 year mortgage with a loan balance of $100,000 and the current principal and interest monthly payment is $632.07.  
  2. The new interest rate you can obtain by doing the refinance is 5% fixed interest rate for 30 year and that would give you a new payment of $536.82.
  3. The closing costs to complete the refinance would be $2,500. (this amount is different in each market).
  4. The monthly payment savings would be $95.25 which is the difference from $632.07 less $536.82 = $95.25.
  5. Based on this $95.25 monthly savings it would take a little over 26 months of making the monthly payment at the new lower 5% interest rate before you would recoup your $2,500 closing costs.
Before any of my Knox County Ohio friends, customers or clients contact a lender to discuss refinancing PLEASE contact me by e-mail or phone me at (740) 397-7800.  I can help you determine within just a few minutes and over the phone if refinancing is a good move for you by using a specialized refinancing computerized calculator.

For those of you who are not planning on living in your current home much longer you may want to visit a few of the links below:

Please bookmark our site and feel free to subscribe to our RSS feed for regular updates.

Thank You!

Sam Miller