Mortgage Savings

If you haven't taken a look at the interest rate associated with your house mortgage recently, you may be paying thousands of dollars more in interest than you need to be. Most people probably aren't even sure of the exact interest rate they are paying. If this is the case with you, it's time to dig out that paperwork and see. Still not sure if it's worth the trouble? Say you have a current mortgage of $100,000 at 9.25%. If you can lower that rate by 2.5%, your monthly rate will be reduced by approximately $177 a month. That's $2,124 a year and over $63,500 for the lifetime of the loan.

The rule of thumb regarding refinancing a mortgage has been to do so when interest rates fell by 2 percentage points or more. Although still widely accepted, this general rule fails to take in a large number of factors specific to your circumstances. Factors such as the current interest rate on your mortgage, the current market interest rate, how many years you plan to stay in the home, whether your current mortgage is fixed or variable, whether the mortgage carries a prepayment penalty and how many years you have paid on your current mortgage all will effect whether or not it is beneficial to refinance. Most importantly, however, the rule fails to take into account that it is now possible to find loans that have no discount points and reduced closing costs. These costs used to be standard and were the primary reason the 2 percentage point rule was developed.

Discount Points (a fee that lenders charge with one point being equal to 1 percent of the loan amount) and closing costs (loan-origination, flood-tracking, loan documentation preparation, recording, appraisal, tax service, title insurance, inspection, credit report, underwriting, escrow, notary, etc fees) can easily add thousands of dollars in up front costs when trying to refinance and get a better interest rate. With some lending institutions now offering no closing cost loans where all these fees are waived, it throws the 2 percentage point rule right out the window.

It also used to be when looking for a lender to refinance your mortgage, you would visit several of the lenders in your area to find the best rate you could. Times have changed and with technological advances such as the Internet, you are no longer limited to your local lenders from which to choose. There are a number of Internet sites that will take your information and have lending institutions compete on giving the best rates for the type of loan you want. Better yet, there are tons of resources at your fingertips to make you better informed going into the process. By using a simple mortgage calculator, you can quickly find out if it makes sense for you to refinance your mortgage.


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