|To Refi or Not to Refi?|
When does it make sense to refinance your mortgage?It all depends on your personal financial needs and goals.If you're trying to save money on your monthly payments, it's just a simple math equation.
You figure out how much it will cost to get a new lower interest mortgage, divide that total cost by the amount of money you will save each month and the net result is your "break-even point" in number of months.
For example, if it cost $2,000 in closing costs to reduce your mortgage payments by $100 per month, you'd divide $2,000 by $100 and your break-even point would be 20 months.
That means if you are planning to stay in your home at least 20 more months, it would make sense to refinance.
That's a pretty simple concept, and most people already know how to "run the numbers using mortgage calculator."
In the "old days," there was a rule-of-thumb that said it only made sense to refinance if you reduced your interest rate by at least 1%. But that was back when virtually all banks and mortgage companies charged "points" and loan origination fees.
Today, all of the loans that we do for our mortgage clients are done with zero points and no loanTo figure out your break-even point on a refinance, you can click here to use our Refinance Analysis Calculator and run your numbers.origination fee -- or NO closing costs at all -- so the "break-even point" comes much sooner.
To figure out your break-even point on a refinance, you can click here to use our Refinance Analysis Calculator and run your numbers.
Or, better yet ... call Ravi at (713) 376-7483 and let us do it for you! We will help you figure out the best mortgage options for your personal financial situation.
The "No Closing Costs" RefiIf you decide to refinance with a "no closing costs" loan, you save money immediately, no matter how little you reduce your interest rate.
If you plan to keep your loan for several years, you are typically better off paying the closing costs and locking in a low interest rate.
But if you plan to keep the loan less than 3-4 years, the "no closing costs" option may be the best for you.
As I said above, you just have to "run the numbers" to see if it makes sense.
The key question to ask yourself is, "How long will I stay in the house?" Or more accurately, "How long do I think I will keep this mortgage?"
Technically, you could refinance with a "no closing costs" loan every time rates drop as little as 0.125% below your current mortgage rate -- but do you really want to go through the hassle of getting a new loan to save a few dollars per month?
For example, if you have a $200,000 mortgage and you refinance to reduce your interest rate by 0.125% you'd save a little over $15 per month. On a $300,000 loan, you'd save about $23 per month.
That may be worth it to you, but I personally think it's silly to chase such small savings.
But if you're happy to save that extra money, go for it.
Some companies over-charge you on the interest rate and hope that you won't notice just because you aren't paying any closing costs.
If you want an HONEST "No Closing Costs" loan at the lowest interest rate possible, call Ravi at (713) 376-7483
Other Reasons to Refinance
Reducing your monthly loan payment is just one reason to refinance your mortgage. There are many others ...
For example, you might want a "cash-back" refinance that doesn't just pay off your current mortgage balance, but actually puts money in your pocket at the close of escrow.
If you have good credit, you can borrow up to 80% of your home's appraised value on a cash-out firstmortgage. For example, if you currently owed $200,000 on a $350,000 house, you could borrow up to $280,000 (80% of $350,000). That would give you $80,000 in cash -- minus any closing costs.
If you want to add on a 2nd mortgage, you could get even more cash out of your house. For lower rates, stay under 90% total Loan-To-Value. But if you want even more cash, you could borrow up to 100% of your home's value -- and in some cases even more -- on a "cash-out" refinance. You could do anything you want with that money, such as pay for home repairs and improvements, pay off your credit cards, buy a new car, etc. In most cases, the interest expense is all tax- deductible, and at today's interest rates, it's probably the cheapest money you can get.
I do NOT recommend spending this money frivolously -- such as taking an expensive vacation to Vegasor buying expensive cars -- but if you can pay off your non-deductible debts and/or add value to your home, a cash-out refi is a very handy financial tool.
Another reason to refinance is to convert an Adjustable Rate Mortgage (ARM) into a fixed-rate loan.
LOTS of people are doing that today!BTW, at RB Realty Group we never force anyone to lock in loan programs which doesn't benefit the borrower. All of our clients locked in nice, either low 30-year or 15 year fixed rate mortgages or what ever payements they are comfortable with, and they're all very happy campers today.
But we are refinancing lots of other people these days who were not fortunate enough to work with us before.
Dump that 2nd Mortgage or HELOCAnother reason to refinance is to get rid of the second loan on your home.
If you used a first and second mortgage combination to buy your home a couple of years ago -- such asan 80/20 "no down payment" loan -- your home's value may have appreciated enough so that you can refinance and eliminate the second mortgage.
For example, let's say you bought your home for $300,000 using a zero down payment 80/20 loanprogram. Your 80% ($240,000)first mortgage has an interest rate of 4.5% and your 20% ($60,000) second mortgage has an interest rate of 7%.
Let's assume that, your home is now worth $400,000.
That means you could get a new first mortgage that would pay off both of the existing first and second mortgages because the balance of the new loan would be less than 80% of your home's current value.
Even if your new first mortgage was the same rate as your old loan, your monthly payments would be significantly lower because you would be financing the second mortgage balance over 30 years, and at a much lower rate.
The same thing goes for a Home Equity Line of Credit (HELOC), which is a type of second mortgage where the loan balance changes as you use the line of credit, and the interest rate varies with the financial markets.
HELOC interest rates are typically tied to the prime rate.If your home's value has appreciated enough to pay off some or all of your HELOC with a new first mortgage that totals less than 80% of the home value, you will lower your monthly loan payments and not have to worry about the prime rate continuing to increase.
Get Rid of that PMI
Yet another reason to refinance your mortgage would be to get rid of your Private Mortgage Insurance (PMI).PMI is far less common than it used to be, thanks to the popularity of first and second mortgage combination loans.