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My Home Loan Help

Don't Wait Too Long to Refi, It Can Cost you a Bunch!

Thursday, December 23, 2010 - Article by: My Home Loan Help - Message

Waiting for the Grass to be greener on the other side? Don't wait too long or it may cost you thousands in the long run.

I have a lot of people tell me they are waiting for the rates to go down to 4.50% or lower before they will refinance. Unfortunately they are sitting with a rate currently at 6.25%.

The problem is you can presently get rates in the 4.75% range for a 30 year fixed. So if we assume the borrowers has a $250,000 mortgage they would stand to save over $225 monthly by refinancing (or $2700 yearly). Instead they are waiting for a 4.50% which they have not been able to get as of now and potentially the rates could go higher with talks of inflation in the air.

The difference in payment between 4.75% and 4.50% is $37/month (which we would all agree is nice to save every month). The problem is if the rates head upward you are leaving money on the table by not locking in a 30 year fixed, that is 1.50% lower than your present mortgage. Being Greedy for that extra .125%-.250% can end up costing you a ton of money over the next 30 years.

Another factor is the vast sweeping changes that have taken effect over the last 6 months. If you wait 60 days to get that Golden rate, the program you need may not even exist anymore. This isn't a scare tactic, it is the reality of where our market is currently. The rule of thumb, is if you can save roughly 1% (this can change depending on your loan size), on your interest rate, it makes sense to consider a refinance.

Also, you need to find your break even point for costs, typically 30 months or less to recoup your costs is a good investment. But you can also have no closing costs on your loan as well. I will offer loans at slightly higher rates, but I pay for ALL of the closing costs. Essentially if the customer payoff is $250,000, that will be the amount of their new loan. In that case it is not costing the borrower any out of pocket expenses to refinance, so they can actually refinance several times in a short period and it doesn't raise their principle balance. So a smaller monthly savings is balanced by not raising the balance.

If you are talking with a knowledgeable Mortgage Professional they should be able to help you get a feel for where the market has been, and were is most likely going and what options make the most sense for you.

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