Is this a good time to refinance? Depends. A couple of determining factors are your interest rate and whether you can qualify for a better rate.
Did you know that both the length of your loan and the interest rate affect how much you’ll pay for your home? Your monthly payments will be higher on a 15 year loan than on a 30 year loan with the same interest rate, however, you’ll save substantially by paying the loan off in only half the time. You’re paying for the money the entire time you’re borrowing it.
Interest Rate: As an example, if you have a $165,000 mortgage with an interest rate of seven percent, your monthly payments on that loan will be $1098 and the total interest you will pay in 30 years is $230,189.
If you borrow that same $165,000 with an interest rate of only five percent, your monthly payment on that loan will be $886 and the total interest you will pay in 30 years is $76,319.
That’s a monthly savings of $212 and a savings in interest over the life of the loan of $76,319.
There are, of course, fees when you refinance so be sure to know what those are going in. Determine how long you plan to stay in the property then calculate whether or not refinancing your loan is worth it after you pay the fees. If you plan to move in six to twelve months, it may not be worth the fees for the new loan.
How about paying your loan off faster? If you have the same loan at seven percent interest but you pay it off in 15 years instead of 30, your monthly payments go up to $1483 but you pay only $101,952 in interest over the life of the loan instead of the $230,189 with a 30 year loan.
For a 15 year loan at five percent, your payments would be $1305 and interest over the life of the loan would be only $69,866.
Ask your lender to break down the numbers different ways before you decide and don’t forget to check all the fees associated with your loan. Lenders are required to give you this information in their Truth in Lending documents so be sure to read them, be informed, and make the decision that is best for you.
Can you qualify?
What’s the maximum mortgage you qualify for? That’s based on a number of factors starting with your income and your debts. To get an idea, check out this Maximum Mortgage Calculator. It will give you great information before you talk with your lender.
What’s been your experience?