When I purchased my home three years ago I thought I was getting a steal at 5.875% APR, why would you ever want to refinance a loan like that I told myself. Times have changed and rates have reached the lowest either I or my Mortgage Broker have ever seen them. If you have been thinking about refinancing your mortgage there is no better time than now to go ahead and do it. After a few text messages and discussions on current rates we decided to refinance our primary mortgage. We are in the throws of refinancing right now and we are looking to pull a pretty good rate, around a 4.5% that is a pretty big change from the 5.875% we are currently paying.
There are a few things you want to look out for when doing a refi, the most important thing, IMHO, is to not stretch your loan back out. If you are 5 years into a 30 year mortgage why add those 5 years back on? We are working our current deal for a 20 year mortgage, this is going to shave 6.5 years off our loan without noticeably affecting our payments. We are getting a good deal on the loan but are still going to have to pay some fees upfront to get the deal completed all told we will probably be paying a little less than $3k out of pocket. That seems like a lot of money but if you look at it over the long run the savings speak for themselves.
My buddy decided to run the numbers for me to see what the amortization of my current loan and my new loan would be compared to each other, the results not only surprised me but blew him away as well. The difference was over $100k. The cost associated with closing on the new loan is minimal compared to the savings you would realize through the refinancing. Based on the two different amoritizations, I would end up paying more in interest on the 30 year loan than the loan balance itself, for the new refinanced loan it would cost just over half as much as the actual loan balance. The following two graphics show the balance of the loan in relation to the total interest paid.
5.875APR for 30 Years
4.5%APR for 20 Years
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Problem is, large numbers of houses are now worth less than their occupants owe on them. No lender will give you a refi for a house that’s worth less than you owe on it, unless you have several tens of thousands of dollars to bring to the table. In some cases, that’s many tens of thousands of dollars. By the time property values come back to what we owe on our houses, interest rates will be back to normal.
I agree but there is still a lot of people who aren’t upside down on their mortgages and potentially qualify for a refinance. The mortgage companies are more strict now on what does and does not qualify and it is almost impossible to refinance a second mortgage. But if you aren’t in one of the hard hit areas you should be ok.
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