You are considering refinancing your mortgage. Your current loan is at 7% with 14 years left and was negotiated one year ago with $2,000 closing costs. The new loan would be 5.5% for 15 years with closing costs of $1,500. Describe how you would decide whether to refinance. include qualitative considerations. Provide examples of your calculations.
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In deciding whether or not to refinance, you’ll want to calculate what your monthly savings will be when the refinance is complete. Let’s say, for example, that you have a 30-year mortgage loan.
Example #1: You have a 6.50%, 30-year mortgage with a remaining balance of $200,000. You have an opportunity to refinance the mortgage at 4.50%, with $5,000 in closing costs. The analysis looks like this: Current mortgage: 6.50%, monthly payment, $1,264. New mortgage: 4.50%, monthly payment, $1,013. Monthly savings: $251.
The outcome of the appraisal can determine whether you should refinance; most conventional lenders look for a loan-to-value ratio at or below 80% to approve refinancing. Look into shortening the length of your loan. If you wish to accelerate the pace at which you pay off your mortgage, refinancing can allow you to do that.
Know how long it will take to break even. 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. Break-even point = Total closing costs monthly savings.
· Mortgage Insurance Fees. Private mortgage insurance. If you refinance a mortgage with equity collateral of less than 20 percent, you will likely need to pay for private mortgage insurance. Private mortgage insurance, or PMI, protects the lender in case the borrower fails to pay off the loan.
if your mortgage rate is 4.75%, is it worth refinance at 3.5% with 29 years left in the old mortgage? Find answers to this and many other questions on Trulia Voices, a community for you to find and share local information. Get answers, and share your insights and experience.
Whether you are choosing to refinance to a record low mortgage rates to lower your monthly payments or you’re refinancing from an ARM to a fixed rate, each refinance decision comes with its own set of questions and considerations.
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