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How much do I have to reduce my interest rate for a refinance to be worth it?

by PArkanian from Lakewood, Colorado. Dec 21st 2012 Reply


Bert Carpenter (BertCarpenter)
#1 ranked lender in Arizona - 1,963 contributions

It isn't the rate reduction as much as it is the dollar reduction. Depending on your loan size, a 2% reduction in rate may be a lot less $ savings than a 0.25% rate reduction. The break even is the real determining factor. If it costs you $1,200 to do the refinance and you save $50 per month in a lower payment, then your breakeven would be 24 months. If you plan to stay in the home, say 5 years and the break even is 6 years, then the savings is not worth it. However, if the break even is less than the time you plan on staying in the property, the more it will make sense. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950

Dec 21st 2012
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William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,727 contributions

The only one that can answer that question is you!! All lenders have guidelines in place to help determine the "Net Tangible Benefit" or "Pay Back" period to a borrower. For FHA, they say you need to save at least 5% off your current monthly payment.. For conventional guidelines, most lenders want to see the closing costs paid back within 48 months.. Meaning that if you save $100 per month on your monthly payment, but you're paying $4800 to get the loan, then to the lender, you are within the guidelines.. Also, it really depends on how long you anticipate keeping your home... if you only intend to be there for the next 5 years, then a NTB of 4 years might not seem worth it to you.. So, as I stated earlier, only you can say if it's worth doing or not.. Since it really has to make sense to you.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Dec 26th 2012
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Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,247 contributions

It really depends on how large your loan is and how much the closing cost you pay (or include in the new mortgage). 0.5% on a $400K loan if there are few or no lender or attorney fees charged to you. If the loan is $125,000 0.5% might not be worth the effort it takes for you to go through the process. Make sense? I do lend in Colorado if you'd like some additional information.

Dec 21st 2012
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Linda Wintersteen (Linda123)
#62 ranked lender in Arizona - 1,256 contributions

First, what type of loan do you have?? fha? va? conventional? arm?? that is the first consideration that we need to look at .. are you upside down on your value?? who is your bank. servicer? linda yourloanpartnerforlife@live.com i have relatives in colorado, its a great place to live!!

Dec 21st 2012
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Tom Butts (Anthem)
#64 ranked lender in Colorado - 4 contributions

A good rule of thumb used by most is the $125,000 rule to determine the drop from your current interest rate for it to make sense. For example, if your loan amount is $250,000 you simply take $125,000 and divide by $250,000 to get .50%. So if your rate is 4% now and if you refinanced to 3.50 or lower than it makes sense.On thing to keep in mind is the closing cost portion and how long it will take you to make it back. I lend in Colorado and have since 1998 and my costs on a loan that size would be about $1600 and my rate on a 30 yr fixed would be in the 3.25-3.375 range depending on your credit score.If you want a formal rate quote, please go to my website www.anthemloans.com and complete a quick quote and I will get it right back out to you.email me for additional info: tom@anthemloans.com , best of luck to you either way!

Dec 21st 2012
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Mark Schmidt (markallenschmidt)
#47 ranked lender in Colorado - 21 contributions

I think the biggest thing to consider is; what do you want to accomplish? If you want to lower your payment to lower you monthly expense, then look at your rate and current payment. Let's say you have a 30 year loan with a rate of 5% or more, you can save some good money each month by refinancing into a 30 year loan in the mid 3% range. On a 30 year loan the costs may be very low, sometime you won't have any out of pocket cost because the rate might have enough credit; money you can use to pay loan fees. If you want to pay off your property ASAP and you have a loan over 5% or more, you might be able to refinance into a 15 year for almost the same payment as your current 30 year loan. Once again with very low or maybe even no costs. We don't charge an origination fee so we are usually a much better deal that other lenders. I work with Cherry Creek Mortgage Company. Send me a note if you would like to look at your options. Most people are very surprised when they see what a difference a refinance can make. Its good to know you are in the right loan. Merry Christmas, Mark

Dec 21st 2012
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,124 contributions

It simply has to make sense... Take your potential monthly savings divided by the cost. That will give you a break even period. if you are going to be in the home longer than the break even period, it probably makes sense. www.FHA-streamline-refinance-mn.com

Dec 22nd 2012
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St.marks Sanders (St.Marks)
#65 ranked lender in Colorado - 10 contributions

Hello, Normally you want at least drop 1% but with the changes in the mortgage industry it has to make sense. Why only drop 1% and redo your mortgage into another 30 years. Think hard and make sure you look at the finance charges before you make the decision. Interest rate is not best way to look at but you have to ask is more important:1.Lower payment2.Finance charges3.Retirement 4.Cost of the new loanMerry Christmas and good luck with your decision. St.Marks

Dec 22nd 2012
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