The Fed has raised the current interest rates and likely will raise them more in the coming year. But interest rates are still low. Does it make sense to do something decisive like refinancing your mortgage?
It all comes down to the numbers. More specifically, will you save money if you refinance? PrimeLending offers a home loan calculator to help you compare your current loan with the terms of the loan you would get by refinancing.
To use the calculator, you’ll need just a few important numbers about your current mortgage:
- Current loan balance
- Annual interest rate percentage
- Number of months remaining in your current loan
Then you need to estimate the following for your new mortgage:
- The annual interest rate
- Length of the loan (in months)
- Loan origination fees (expressed as a percentage, usually about 1% of the new loan)
- Other fees/discount points expressed a percentage from 0 to 5
- Plus miscellaneous fees. Here are some common fees and guidelines:
- Application fees – $250 to $500
- Document preparation fees – $200 to $400
- Appraisal fees – $300 to $700
In some cases, you might also have to kick in a prepayment penalty if you pay off your original mortgage early and title examination fee if you change lenders. A PrimeLending home loan expert can help you estimate fees for your specific situation if you have questions.
With all of this information, you can calculate whether or not you’ll break-even; in other words do your savings cover your costs. You’ll also get an idea of how much you can save (or spend) over the life of your loan.
The Bottom Line
A good rule of thumb, you should consider refinancing if:
(Monthly $$ Saved) X (Number of Months You Plan to Stay in Home) > $$ Spent on Refinance
With rates potentially rising within the next year, it might make sense to refinance your loan. Our calculator can help you decide if refinancing may be the best way for you to go. If the numbers work in your favor, contact a PrimeLending home loan expert to lock in rate or learn more about your refinancing options.
from the PrimeLending blog by Jack Honig