Facebook Twitter Instagram
    Mortgage.info
    • First Time Homebuyer
    • Loan Programs
    • VA Programs
    • Refinancing
    • Beyond the Mortgage
    Mortgage.info
    Home»Closing Costs»How to Know If Refinancing Will Save You Money?
    Closing Costs

    How to Know If Refinancing Will Save You Money?

    Chris HamlerBy Chris HamlerOctober 25, 2016Updated:October 26, 2016No Comments3 Mins Read
    Facebook Twitter Pinterest LinkedIn Tumblr Email
    Share
    Facebook Twitter LinkedIn Pinterest Email

    how-to-know-if-refinancing-will-save-you-money

    Months after the controversial Brexit vote that caused mortgage interest rates to plummet to record lows, rates remain attractive. As a result, many homeowners are still considering a refinance as a means to either tap into their home’s equity or save on monthly payments.

    But for very specific reasons, refinancing is not always feasible for everyone. If you’ve been 10 to 15 years deep into your current mortgage, it would be unwise to refinance. Your credit score and debt-to-income (DTI) ratioare also major considerations. Given all other factors remain constant, however, you may ask: “Is there any way for me to determine if a refinance will save me money?”

    Good news! There in fact, are. Below is a checklist of aspects you need to carefully look into in order to make smart decisions about refinancing:

    Talk to a qualified professional to learn more about savings and refinancing.

    Calculate the Break-Even Point

    This is the most important math you need to get your head into when refinancing. Calculating the break-even point lets you know how much time during the duration of the refinance you will be able to recoup the cost you paid for closing.

    For example, if you know you will be able to save $100 a month on your new loan and it cost you about $3500 in closing, you need to divide $3500 with the $100. The resulting value will tell you the number of months that need to run before you get back the money you’ve put in for closing.

    If you decide to move before this period, that means you are losing money on the refinance.

    Consider Closing Costs

    Closing entails about 3 to 6 percent of the loan amount. If you don’t have the money to fund the purpose, you can consider zero or no-cost refinance. However, you will have a higher interest rate and this way, you will not be able to save because you will be borrowing more. It’s a better strategy, therefore, to pay the fees upfront even if it might mean some necessary initial sacrifice.

    Look Into Your Monthly Savings

    Your monthly savings would depend on the interest rate you will get. The lower it is , the more you will save. Ask quotes from lenders and calculate the new payments you will have monthly. Compare this with your current payment and subtract the difference between the two amounts. The resulting number is the amount you will save.

    Learn about today’s rates.

    Think About Tax Deductions

    You might be worried that your new mortgage would no longer be subject to tax deductions. Worry no more – the Internal Revenue Service(IRS) considers refinanced debt as home-acquisition debt, giving you the continued privilege of still being able to deduct the interest on the amount of your current mortgage. That means the new mortgage remains deductible.

    In the case of current vs new, zoom into the fine details:

    Current Mortgage New Mortgage
    monthly payments with interest, mortgage insurance premiums (if applicable), lost interest on upfront and monthly costs origination charges at closing, monthly payments with interest, mortgage insurance premiums (if applicable), lost interest on upfront and monthly costs, savings on tax, balance reduction

    There are various online tools you can use to aid your calculations. But to get near-precise results, make sure your input are also on-point. Labor with estimates. And talk to a lender to get guided support.

    Chris Hamler
    + posts
    • Chris Hamler
      https://mortgage.info/author/chris-hamler/
      Mortgage Programs for First-Time Home Buyers
    • Chris Hamler
      https://mortgage.info/author/chris-hamler/
      So You Have a House Now. What Else Do You Need?
    • Chris Hamler
      https://mortgage.info/author/chris-hamler/
      Should I Cash-Out My Equity to Invest?
    • Chris Hamler
      https://mortgage.info/author/chris-hamler/
      How Will the New Tax Laws Impact Homeownership?
    closing costs current mortgage monthly savings mortgage refinance mortgage refinancing new mortgage refinance refinancing save money second home second mortgage tax deductions
    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    Chris Hamler

    Related Posts

    Don’t Overpay for Your Mortgage Refinance: Here’s How to Slash Your Costs and Save Big!

    November 22, 2022

    Pros and Cons of Refinancing in the Current Market

    October 21, 2022

    How Do Seller Closing Costs Affect You?

    May 28, 2022
    Mortgage.info
    © 2023 Mortgage.info Designed by ThemeSphere.

    Type above and press Enter to search. Press Esc to cancel.