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.
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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