Make Sure a home loan Refinance Is smart Suitable for you

Everyone is talking about refinancing their home mortgage these days. Rates are still at historic lows, but seem to be on the move, and the direction is up

While that's unfortunate for those still looking to get a refinance deal through, the good news is that a rise in rates could be a sign that the general economy is starting to round the corner towards a recovery. 

Boy, wouldn't that be welcome news! So now we're sort of stuck wondering whether to hope for rates to go up or not...

Make Sure a home loan Refinance Is smart Suitable for you

Well, if you haven't taken advantage of these low rates yet, and if you're like most people who are hoping to see an improvement in the overall economy... what are you waiting for?

You really should call and talk to a mortgage professional as soon as possible to see if refinancing your home loan makes sense for you

If it does, you need to act as quickly as you possibly can to lock in a low rate now so that you can have peace of mind as you cheer for the recovery and watch the rates go up again.

The key thing to understand however, is whether or not refinancing does make sense for you today

Don't get suckered in to a refinance just because everyone else is doing it or because you want to be able to brag at the next cocktail party or barbeque that you have the lowest rate in the neighborhood.

Remember, refinancing means getting a whole new home loan, and in so doing, you're going to have to go through the same steps you did when you got your current loan, including all those fees

That's where you need to take the time to crunch some numbers to see if it makes financial sense for you to go through with it. Fortunately, it's really not all that difficult (though some of it will be up to your best educated guess).

First, you'll need to figure out what kind of savings you'll get from a new, lower rate mortgage. And remember, you should assess apples to apples

So when you look at a new lower rate, you're also probably looking at a lower loan amount than what you took out on your existing loan (you've probably paid off some of the principle, right?)

So to get a true reading of your savings, take your new rate for your new loan amount and compare it to your old rate at your new loan amount. If you neglect to do this, you'll be seeing some apparent savings in the numbers that don't really exist.

Next, you need to figure out what the total cost is of getting your new mortgage. Don't include things such as taxes and impounds, as these aren't really 'costs' for a new mortgage.

These are expenses you pay regardless of whether you refi or not. Just look at the lender fees origination, appraisal, processing, title fees, etc. Add up all these non-recurring costs to get the cost of the loan.

Once you have these 2 numbers - your (true) new monthly savings and the total cost to get that new loan, divide the monthly savings into the cost.

For example, if you were going to save $200 per month and it will cost you $2,000 to get the loan, divide 200 into 2,000 which gives you 10. Ten is the number of months it will take you to recoup the cost of the loan through your monthly savings. From month 11 until you get rid of the home (or the loan), you are saving money.

So this is where it takes a bit of guess work on your part... How long will you stay in the home?

If you're sure you'll be there long enough to recoup the cost, then refinancing is probably a good idea for you. If you're not sure, (or if you're sure you won't be there long enough), then don't bother with a refinance. It just won't pay for itself and is a losing proposition.

If you're interested in more detailed explanations of the pros and cons of refinancing, or how to make the most of the savings should you decide that refinancing is appropriate for you, please visit Baltimore Refinance Guide.

That's the discussion in this article that I've summarized about Make Sure a home loan Refinance Is smart Suitable for you. Hopefully it can be useful and add insight.

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