Should I Refinance My Mortgage?
That’s the question we want to answer today.
Mortgage rates are still very, very low. Who would’ve ever thought we’d see mortgage rates this low for this period of time.
I remember thinking back in August when we first started building our house and mortgage rates were at their lows that we’d never see those rates by the time we got our home mortgage loan.
But to my surprise we ended up getting a 4.875% rate even with a 60-day lock! I was ecstatic!
Mortgage rates are still very competitive and so if you haven’t taken advantage of a mortgage refinance, you may want to seriously consider it soon – before mortgage rates start going back up again!
But, is refinancing your mortgage a smart thing to do? What is you don’t plan to stay in your current house forever? Should you still refinance?
These are good questions to ask!
Thankfully there are handy mortgage refinance calculators that can help us make decisions like this.
Here are some things to consider when refinancing your mortgage, and then I’ve attached a mortgage refinance calculator that I found on mortgageloan.com.
Additionally, it’s a good idea to check your credit report and score, so you know ahead of time what sort of rate you might be eligible for.
What is Your Current Mortgage Rate and What New Rate Could You Get?
What is your existing rate on your mortgage? Where are rates at now in the open market?
Here’s where rates are at today:
Or, to get an idea of mortgage rates in your state, check out GoBankingRates.com, which allows you to choose your state and the mortgage amount and compare rates in your area.
If you can drop your rate by at least a percent or more, you’ll want to seriously consider a refinance.
How Long Do You Plan to Stay in the House You are Refinancing?
Are you only planning on staying in your existing home for another year or two? Maybe you’ll want to hold off on the refinance!
If you plan to stay a little longer, then the closing costs may not be as bad as you look at your break-even point.
Have a good idea of your time frame so you can make a more educated decision on whether the costs of refinancing your mortgage will be worth it.
What Type of Mortgage Loan Do You Have Currently?
Do you have a 5-year Adjustable Rate Mortgage (ARM) that’s about to expire? You may want to refinance very soon and get a fixed-interest loan!
Do you have a 30 year mortgage and you’d like to get that down to a 15 year mortgage?
The difference in rates may allow you to do that without adding much more to your payment.
What Is Your Home’s Value and Can You Get Rid of PMI?
With the real estate crash that we’ve seen the last couple years, it doesn’t always make sense to refinance. Decreasing home values have made it difficult to really make sense of the numbers in many cases.
But, you’ll want to know what your home’s value is and if you can get rid of PMI if you are still paying it.
PMI is private mortgage insurance that lenders typically charge if your loan-to-value ratio is not quite 80%. If you have paid off a chunk of your mortgage and think your loan-to-value is at least 80% then you may want to refinance so you can get rid of that pesky PMI!
Mortgage Refinance Calculator
Check out this handy mortgage refinance calculator and determine if a mortgage refinance is right for your situation!
Should I Refinance?
You might also be interested in this Credit Card Payoff Calculator!
What Are Your Thoughts?
Readers, have you refinanced your mortgage recently?
How did the process go?
What tips would you offer other readers to help them through the mortgage refinancing process?
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{ 9 comments… read them below or add one }
We have to renew soon, so we are very grateful that rates are still low. We have a variable rate mortgage with a reasonable cap, so we will probably go that route again.
A local bank offered a Home Equity Loan product. Fixed rate, no point, no closing. We used it years ago to drop from a 30 yr to 20, then to 15. Now that we have 7 years left on it we are doing one more REFI from the 5.24% 15 to a 4.99% 10 yr. Easy enough to make the payment to stick to our 7 year goal. 1/4% ‘only’ saved us $26/mo when I adjust both payoffs to 7yrs, but better to have that $300/yr in our pocket. I just called in the application now, by coincidence. Should close by early next week.
People who think there’s some rule that they need a drop of over X% in the rate need to just do the math. With no points, no cost at all, even 1/8% will save money. Is $10-15/mo worth 10 minutes of your time?
David – yeah, I can’t believe rates have stayed this low, but I guess I shouldn’t be surprised with the government really trying to keep credit and lending going.
Joe, you are absolutely right – do the math and see what works. That’s great you saved $300/yr. These are definitely good times to be checking to see if refi’s make sense! Thanks for sharin’!
Spending $5000 for closing costs to get a $50/month advantage will probably be a step back for most. The recapture on that will be 100 months, or greater than eight years.
Statistically, most people don’t carry a mortgage for more than 5-7 years before selling or refinancing again.
Kevin – you are right, of course. Closing costs create a tiny math problem. But as closing costs approach zero, you are left with how much time the effort cost you. An hour of my time is worth saving the $26/mo for the next 7 years. That’s just about my beer budget.
This is quite different from refinancing with costs and each time pulling money out and/or extending the time on the loan. That’s a debt snowball in the wrong direction.
Yes, the higher the closing costs, the less valuable the refinancing becomes. The calculator factors that in to show you what your value would be minus closing costs etc.
info@vanillaskyproductions.com Kevin – you are right, of course. Closing costs create a tiny math problem. But as closing costs approach zero, you are left with how much time the effort cost you. An hour of my time is worth saving the $26/mo for the next 7 years. That’s just about my beer budget.
Should rate alone be the reason you refinance? Good questions in this post to be aware of BEFORE you refinance…
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