Should I Refinance My Mortgage?

There are a lot of qualifiers that need to be taken into account before this question can be answered. How long do you plan on living in the house. What is the difference in the interest rate? What will be the difference in the payment? How much will the refinance cost? How long until the cost of the refinance (usually over $3,000) will be recouped by the lower interest rated.

How much you will save by lowering your Home Mortgage interest rate?

Let's figure out how long it will take to make this refinance worthwhile. Lets take a $300,000 loan at 6% over 30 years with a payment of $1798.65. If we are able to get a new loan at 5% on $303,000 over 30 years for $3000 added to the loan balance This new payment will be 1626.57.

Is this a good deal? You are saving 172.08 per month. Divide the cost of the new loan $3000 by the savings $172.08 and you come up with 17.4 months to pay off the $3000. You will also have to pay down the amount you would have paid off in the 17.4 months if you were to continue making the same payment on your 6% loan (which comes to about $6000). So after 18 months you will have paid down the cost of the new loan and another 36 months the $6,000.

If you continue to make your old payment you will owe less than you would with the old 6% loan after 54 months. This highlights how long it takes to make up any addition to a long term loan principal. Lowering your payment by $172 is handy, but it takes a long time to make up the additional amount you owe.

Other Benefits to Refinancing.

If your new loan is assumable and at a very low interest rate (historically speaking).

If the lower payment is critical for you to keep your financial head above water.