Things to Consider While Evaluating Mortgage Refinance

Things to Consider While Evaluating Mortgage Refinance

Things to Consider While Evaluating Mortgage Refinance

Comments Off on Things to Consider While Evaluating Mortgage Refinance

In general, mortgage refinance is considered when loan rates go down. How much lower the mortgage rates need to plummet for justifying refinance?

Let’s learn more here about mortgage refinance. Homeowners decide to refinance their loan, so as to reduce their interest rate. It is reported that average homeowner can save minimum $3,000 every year through mortgage refinance.

Consider these aspects to evaluate if low rates justify mortgage refinancing

  • Predicting interest rates in future is not possible. So, it is wise to evaluate mortgage refinance on the basis of current rates and not prediction of future rates.
  • Mortgage lenders hype to suggest low payments but this is also an added term of new loan. For example, in case your mortgage term is for 20 years and you refinance to 30 years then this extended period will low your monthly premium at same interest rate. However, you end up paying more interest because of extended term. Certainly, your monthly payments reduced and this can help you in financial crisis.
  • Lowering monthly premiums saves money but refinancing hardly affects tax consequences.

Therefore, how much lower rates justify mortgage refinancing, is the complex question that still hangs. Better way is to calculate.

  • Decide how much interest is saved every month.
  • Reduce interest saving by marginal tax rate [small tax deduction]
  • Find the total mortgage refinancing cost from lender
  • The total refinance cost needs to be divided with monthly after-tax savings

Ultimately, you get a breakeven point. Refinancing will make sense, if you wish to stay longer than breakeven point. Remember to concentrate on interest rate and even refinancing cost.

Your credit has improved

Even when interest rates don’t go down, you will be eligible for low rates, if your credit score improves. Therefore, for attaining the lowest mortgage rates intend to attain credit score higher than 760.

Donald Phillips

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