As the financial crisis in Europe continues its gyrations, global investors seeking a safe haven for their money are buying US Treasury Bonds, pushing T-Bond rates to all-time lows and taking mortgage rates with them. As mortgage rates reach multi-generational lows, refinancing a mortgage can save thousands of dollars per year. By swapping out a loan with a higher interest rate for one that is lower, a home owner could save significantly on their monthly bills. A refinance can help them pay more per month toward the principal balance of their loan and get out of debt quicker.
The biggest question that remains is whether or not now is a good time to refinance your mortgage loan. While the decision varies greatly on the specific individual and your financial situation, , there are some guidelines they can follow to determine if it makes financial sense to refinance today. In the end the ultimate goal is to be able to reduce one’s monthly bills, or consolidate debt. Regardless of the reason why the refinance occurs, the outcome is to save money.
The question on whether or not to refinance is a tricky one. The borrower must ask themself a few questions first. If the mortgage is only a few years old, and they plan to be in the home for many years to come, a refinance might be a good idea. If they will save at least $100 per month, or at least recoup the closing costs within 30 months, a refinance might be a good idea. A mortgage calculator can walk you through the financial calculations to help you determine what the savings would be. Then talk to a mortgage lender and find out how the process works and what your specific costs would be. With interest rates as low as they are now, there are a lot of people that can benefit from refinancing.
Dropping interest rates are what spur refinancing. Since the principal balance of the loan will determine how much is saved there is no way to tell if a 0.5% interest rate drop or a 1% interest rate is going to be the right amount to make the refinance worthwhile. When rates are falling, it is time to start considering it.
A big factor in the decision is the length of the current mortgage, and the estimated length of the new one. The sooner the mortgage matures, the less the borrower is going to save with a refinance. Likewise, if the new mortgage is going to only be in place a few years before the borrower moves, it may be in his or her best interest to simply keep the old loan.
There might be times when your monthly payments actually increase. This is the result when refinancing from a 30 year to a 15 year mortgage. The payments are slightly larger, but the loan term is cut in half. Therefore the total amount spent over the years on interest is significantly less.
Be smart and be informed. Before you call a mortgage broker, work out for yourself the benefits of mortgage refinance for you.