Refinancing Your Home, Will It Save You Money?
Will Refinancing Your Home Save You Money?
The media reports that mortgage interest rates are at a 40-year low. Many homeowners who have held the same mortgage for the past ten years or more are asking themselves if refinancing will save them money and, if so: how much? While this may be an easy question to answer for many people but for some people, the answer may not be as obvious and may require a deeper analysis. Part of the basis for determining whether the homeowner is saving money by refinancing is dependent upon the objectives each individual is attempting to accomplish.
The analysis process for individuals who are contemplating a simple refinancing to lower their mortgage payment and/or shorten the repayment schedule only needs to concern themselves with comparing total the amount paid over the life of the mortgage less the cost for refinancing their home. If the amount that they save in payments is greater than the cost to refinance their home, they will have obviously saved money.
However, if they have immediate plans to sell the home, then the amount of money they saved in house payments may be less than what it cost to refinance, which represents a loss. The way to calculate how long homeowners need to keep their home a simple formula is to divide the total cost to refinance by the amount of money saved each month. As an example, let us assume that the total cost to refinance the home is $3000 and the new house payment is $75 less. Three thousand divided by 75 equals 40. This means the homeowner needs to keep the home for 40 months in order to break even.
Other homeowners may have different reasons for refinancing their home. One example is homeowners who have a significant amount of equity who would like to consolidate other debts. These debts may include high-interest credit card(s), medical bills and car payment. Refinancing their home provides them with one easy payment. In addition, the interest on a mortgage is a write-off for their income taxes, which is an example of an indirect way they will save money by refinancing their home. One should exercise caution when refinancing their home to pay off credit cards as it is easy to continue using credit cards, which will put them in further debt.
Some homeowners find that they have to refinance even when they will not save money directly by obtaining a lower interest rate. These homeowners may need to lengthen their current amortization schedule to lower their payment so that they can continue to afford to make their mortgage payment and not default on their loan and allowing it to go into foreclosure. Their mortgage payment may be less but for a longer period. The loan is going to cost them more money by refinancing, but at least they will save their home and the equity they have in it by refinancing. In addition, by avoiding a foreclosure, they will succeed in protecting their credit score, which will save them money in interest when obtaining any new loans.
In conclusion, while some homeowners may be able to derive at a simple answer as to whether refinancing their home will save them money; others may save money in other indirect ways for which, without the original mortgage, they would not have had the option. In addition, while there are some situations where homeowners may lose money by refinancing, it may save them money indirectly and may help them save their asset(s) including their credit score.
When we talk about New York mortgage company, Continental Home Loans Inc. provides specialized loan solutions in a friendly, responsive manner.
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