Does it make sense to refi?
Posted by Jim Hungerford on July 12, 2010 · Leave a Comment
Does it make sense to refinance?
Experts have differing opinions/views as when to refinance. Unfortunately, there is no magical rule fo thumb that covers every situation.
**IF THE REFINANCE BRINGS YOU BENEFIT, THEN IT MAKES SENSE TO DO!!**
Home refinancing should be done when your financial situation can be improved. Refinancing can help with lowering your monthly debt load, pay-off outstanding debt and converting from variable rate products to fixed rate.
A couple of questions you need to ask yourself:
1) How long do I plan on keeping the loan?
2) What am I trying to achieve with the loan (lower rate, monthly payment, pay-off debt or peace of mind for fixed product)?
3) Does your current loan fit your lifestyle (fixed vs variable, term of loan)?
Would refinancing be worth it? Refinancing does not make sense for all, but it does have its place. The old rule of thumb was if your current rate is 2% higher than the current market rates, then it was worthwhile. This philosophy does not hold true in today’s market. Lenders have a variety of options when it comes to structuring loan scenarios! Depending on the loan amount and the particular circumstances, it may make sense with as low as a .5% rate swing. The bottom line is what is the breakeven point!!
The breakeven point is the guts of the refinance: Over the period of time you stay in your home, will the savings from the lower mortgage payment (PI) be greater than the upfront cost of the loan. The upfront costs would be any closing costs/discount points that you either include in the loan or pay out of pocket.
Factors to consider:
1) Your current rate
2) What is the new rate
3) Closing costs associated with new loan
4) How long do you plan keeping loan
A simple yet not perfect way to determine the breakeven point - the closing cost/discount points of the new loan divided by the reduction in the principal and interest payment of the new loan (old PI – new PI = monthly savings).
Home refinancing may work best for individuals looking to staying in home for 5 years or longer. You need to know the exact purpose for which the refinancing will be used for.
If there has been a down tick in the market place, then you should consider looking into refinancing!
Please feel free to contact Jim Hungerford directly with any questions at 971-226-8403.
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Filed under Home Buying · Tagged with calculating, Conforming loan limits, conventional, Finance, financing, home refinancing, interest rate, interest rates, mortgage, mortgage market, Mortgage Rates, oregon, portland, refi, rule of thumb
