Old Rules No Longer Apply
If interest rates fall below your current mortgage rate, refinancing may be a great idea. The old idea that rates must be 2 full percentage points below your existing loan is not true. A drop of as little as 1/2% could save you thousands of dollars.
A variety of loan terms, no-point rate options and lower closing cost loans have greatly decreased the rate difference needed to make refinancing profitable.
We as consumers spend substantial amounts of time trying to make our savings and investments earn more. One avenue which is sometimes overlooked is seeing how much we can decrease our debt payments. Since a mortgage is usually the largest debt we have, it pays to concentrate most on reducing that payment first.
Costs Lower Than Ever
The costs of refinancing have decreased greatly in the past several years. Using no cost out of pocket loans, for example, borrowers can save thousands of dollars up front. Also, closing costs can usually be included in the new mortgage loan amount so that no cash is required to execute a refinance.
Paying Points for a lower interest rate is an excellent idea if you are staying in the property more than 4 years.
Deciding whether to refinance usually involves totaling the costs of refinancing and subtracting those expenses from the total savings expected. It is also important to determine how many months it will take to pay back the costs of refinancing from the savings that will accrue.
The savings that can be obtained from refinancing depend directly on the answers to the above questions. It is best to answer these questions with the help of a qualified mortgage professionals.