April 14th, 2018 8:59 AM by Jackie A. Graves, President
rates for mortgage refinancing are still very low. Is it time for you to refi?
how to determine whether you will benefit by refinancing your mortgage.
2 major types of refinances:
reasons people refinance: to replace an adjustable-rate mortgage with a
fixed-rate loan, to settle a divorce or to eliminate FHA mortgage insurance.
Check today’s low rates on a mortgage
point = Total closing costs ÷ monthly savings
months to break even = $3,000 in closing costs ÷ $100 a month in savings
you plan to keep the house for less than the break-even time, you probably
should stay in your current mortgage.
the term in rate-and-term
formula above doesn’t measure your total savings over the life of the new
mortgage. A refinance can cost more money in the long run if you start your new
loan with a 30-year term.
has been paying $998 a month for 10 years. If Kris doesn’t refinance, the
payments will total $239,520 over the next 20 years.
refinance, Kris could pay $697 a month to repay the new loan in 30 years, or
$885 a month to pay it off in 20 years.
$697 x 360 months = $250,920
240 months = $212,400
example above, Kris borrowed $186,000 at 5 percent. 10 years later, Kris had a
remaining balance of $146,000, and refinanced at 4 percent.
mortgage calculator to compare your own loan scenarios:
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and cons of cash-out refinances
Cash-out refinances often are
used to pay down debt. They have pros and cons.
Imagine that you use a cash-out
refinance to pay off credit card debt. On the pro side, you’re reducing the
interest rate on the credit card debt. On the con side, you may pay thousands
more in interest because you’re taking up to 30 years to pay off the balance
you transferred from your credit cards to your mortgage.
But the biggest risk in this
scenario is in converting an unsecured debt into a secured debt. Miss your
credit card payments, and you get nasty calls from debt collectors and a lower
Miss mortgage payments, and you
can lose your home to foreclosure. Home equity debt that’s added to the
refinanced mortgage always was secured debt.
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