May 10th, 2016 4:12 AM by Jackie A. Graves
your mortgage when doing so will save money or give you financial flexibility.
how to determine whether you will benefit by refinancing your mortgage.
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 refinance
Mortgage closing costs can total thousands of dollars. To
decide whether a refinance makes sense, calculate the break-even point -- the
time it will take for the mortgage refinance to pay for itself.
Example: 30 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.
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.
Kris 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.
After refinancing, 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
$885 x 240 months = $212,400
the example above, Kris borrowed $186,000 at 5%. 10 years later, Kris had a
remaining balance of $146,000, and refinanced at 4%.
Use Bankrate's mortgage
calculator to compare
your own loan scenarios:
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refinances often are used to pay down debt. They have pros and cons.
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 card to your mortgage.
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 credit score.
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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