Refinance Current Home and Save
Most people have heard the saying that it is not worth doing a refinance unless you are saving at least 1% on the rate. That information is not entirely accurate in today’s market. The new regulations on banking have made the profitability of mortgages less which means rates can provide a possible higher credit on the refinance to allow you to have a no closing cost loan by just lowering your investment by say .5%. The question you then have to ask is it worth the 2 or 3 hours in that month of collecting the documents for you and your family to complete the refinance? For instance, on a 250,000 principal balance, a .5% rate reduction is approximate $1250 of savings in the first year alone. If you didn’t pay any closing cost and originations to lower your price, you see those savings immediately. Let’s calculate that savings over a five-year period, and although it’s not exactly going to be $6250 of interest savings, due to the fact of principal reduction, you can probably guarantee yourself that it will be around $5,000. That is extra money in your pocket rather than the banks, so yes, in a case where you have a no closing cost loan on even as little as .25 or .5%, it can be worth it to you over the term of the loan. You just have to decide the extra 2 or 3 hours you spend collecting documents over that 30 day period is worth the extra cash in your pocket. I have been in banking for ten years and have been licensed in investments and refinance my home for .5% less knowing I had a 0 closing cost loan even though I plan to sell in 3 years. I figured that was an extra few grand on interest for a few hours out of the month would be worth it.
I also want to remind homeowners that just because you have a particular rate and think that the .5% rate reduction just doesn’t make sense, you ought to make sure you don’t have PMI on your loan. You could refinance out of PMI because of home values increasing. This little rate reduction may also be the perfect time to shop homeowners insurance that way you get even more savings! These little things can add up and not just save you on interest, but if you can cut your homeowner’s insurance by another $500 a year, that totals another $2500 over that five years.
The last thing I will mention that some owners are not aware of about refinance loans is that you can skip a mortgage payment and you get a refund on your escrow account as we will reset up your escrow on our side allowing you possibly a little extra cash and the luxury of skipping a mortgage payment. This process usually allows borrowers to put another $3000 back in their pocket right after the loan closed which is your money to use as you prefer.