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WHEN IS IT TIME TO REFINANCE AGAIN

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WHEN IS IT TIME TO REFINANCE AGAIN

Freddie Mac’s weekly mortgage rate survey reveals that the average interest rate on a 30-year fixed rate mortgage was 3.84%, down from 3.88% the previous week.  Last year at this time, the rate was 4.71%.

So, you may ask yourself, when is it time to refinance again?  How do I determine exactly what the refinancing costs will be and how long will it take me to recover those costs?

Much depends on the individual borrower’s situation.  Naturally, you must have the income to qualify for a new loan and you must be able to verify that income to the lender’s satisfaction.  You must also have sufficient equity in your home to meet the lender’s guidelines.  Most conventional loans limit the loan amount to 75% of the home’s present market value. 

Note one exception is the HARP-2 loan program that will allow specific homeowners to borrow up to 125% of the current market value of their home.  The guidelines limit those who may qualify to a small number of homeowners.

One important question to ask is, exactly how long do I plan on living in my present home?  If you plan to sell in a year or two, a refinance is not likely to pencil out.  It will take some time to recover the costs associated with a refinance.

Another factor in the equation will be your present interest rate.  Those paying six or seven percent will have greater financial motivation than those who just refinanced last year at less than five percent.  The delta (difference) between your present monthly payment and the proposed refinance payment will determine how much or how little you may save and how long it will take to recover refinance costs.

The formula is simple.  Determine the proposed monthly payment on your new loan see how much lower it will be than your present payment.  Divide that number into the cost of your refinance and you will have the payback period.  Therefore, if your current payment is $ 1700 per month and the proposed payment will be $ 1600, the delta is $100.

If the refinance will cost you $ 3000, your payback period will be 30 months, or five years.  The savings after that five- year period are your gain for the refinance.

It will probably be more difficult to learn what your refinance costs will be than anything else in this exercise.  Find a local loan consultant with whom you feel comfortable dealing and enlist their assistance.  They will have to know about your financial situation in order to give you accurate information.

It may be time to refinance your El Dorado Hills real estate!

 

 


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