The financial question of the day is, “Should you refi (refinance) your home mortgage? If you looked at Palm State Mortgage Company’s previous blog, you discovered quite a few details about the procedure of refinancing your home. Be sure your read and review that article, as this blog is actually part 2, although it has its own stand-alone merits and title.
“To Refi or Not to Refi” is a big financial question for some homeowners.
To put it simply, in our previous blog, you learned how to save some money on your interest and how to lower your monthly payment rate. If you had not yet considered a refinance loan, you probably did so after reading that article. “If you bought a home within the last five to seven years and you’ve built up equity, you might be thinking about refinancing.”
So, by now you are thinking that refinancing is a pretty good idea. However, before you refi, we want you to balance a few pros and cons. Palm State mortgage Company often must remind clients that there’s financial danger in just focusing on either the good points or bad points of any financial move as big as a home mortgage. Depending on your fiscal situation, any pro to refi a loan could be transformed into a con, and vice versa. So we have created a list of the three big questions you must ask to help your decision to refi or not to refi:
First Big Financial Question: Do you have 2-5 percent of the new loan’s value to help you pay for closing costs?
Are you aware that a refinance is just like “taking out a new loan to replace the original one?” As we told you in our previous blog, a refinanced loan is just like the first loan. You will pay closing costs at the end of your paperwork.
Palm State Mortgage helps you figure the costs behind refinance loans.
Be aware that on a $200,000 home loan, you will be required to pay closing costs in the amount of $4,000 to $10,000.00.
If you don’t do your homework, that amount could really put a bite in your budget.
Likewise, be aware that you might qualify for a no-closing cost mortgage.
Caution: The lender does not do this deal just to be your friend; he will profit by it. You see, you might discover that you will be charged at a high interest rate, but it won’t look that bad until you do the math.
The question here is, “Do you understand the deal you could be making?
Here is how it works for the lender: to make up for the money they’re losing up front, the lender could charge you a slightly higher interest rate. One or Two Points doesn’t seem like much, over the life of the loan. However, the difference seems to swell and create unexpected expense.
Refi Question One, Phrased in Numbers
- Let’s take a look at the numbers from the sample math at Smartassets: The hypothetical question is, “Should you take out a $200,000 loan at 4% interest or take out the same $200,000 at 4.5% with no closing costs?
- At first look, the difference doesn’t seem great, does it? Ahhhh, but over a 30-year term, you will pay thousands of extra dollars in interest. Like Palm State Mortgage Company just said above, going with the second option can swell up your interest payments thousands?
- The financial question is can you afford to do that with your budget over the long haul? If the example is too far from your math, enter your own figures at the closing-cost calculator.
Second Big Refi Question: Do you know the price of lowering those loan payments per month by adding more time?
Be aware that stretching the terms over your loan and taking more time to pay might lighten your monthly payment. The question is, do you understand that you will be paying more money in interest for that privilege? A lot more!
Refi Question Two, Phrased in Numbers:
When you first buy your home, you are delighted with a $200,000 loan at a rate of 4.5%. Your payments come to just over $1,000, a perfect hit on your budget. But the question is, do you understand that after only 5 years, you have paid $ 43,000 in interest and $ 20,000 off the principle?
Financial advice from Palm State Mortgage helps Florida Homeowners refinance.
Do you really realize that at the 5 year point, the loan would have cost you over $164,000 in interest?
So, hypothetically, Palm State Mortgage Company suggests you do the math, yes, you see that you could refinance. But just because you could refinance, does that mean you should?
So here are some example numbers behind big financial Question Number Two:
- You could refinance the remaining $182,000 for another 30 year term at 4%, instead of 4.5%. The question is, “Is it worth it?” Once again you put the question to your calculations. Your payments would drop by only $245 a month, but you’d end up paying more interest.
- Shockingly, after you take on your closing costs, and compared to the original loan terms, plus your out-of-pocket closing costs, and your time and trouble, your savings only amounts to less than $2000.00.
Next week we intend to bring you the Third Big Financial Question behind your option to refinance your home.
That will be our third article in our coverage of Fresh Eyes on Refinancing. So, to paraphrase a little Shakespeare, “To refi or not to refi, that is the question.” The Palm State Mortgage Company answer is very individual to every client. The answer depends on mathematics and your financial needs at the time.
