Is Now the Best Time to Refinance?

Published on Oct 11 2012 // Written By // Mortgage, Popular

This is a guest post by Jason Cabler who blogs at http://www.cfinancialfreedom.com/

Image Source: http://ncfhaexpert.com

Have you thought seriously about refinancing your home mortgage lately?  If you haven’t, you should probably consider taking a serious look it, because in a lot of cases (especially with today’s incredibly low interest rates), refinancing is a tool that could literally save you tens to hundreds of thousands of dollars over the life of your mortgage loan

At the moment, rates are at all time lows and have been for a pretty good while now.  Nobody knows when they’ll start going up again, but they eventually they will and probably will never get this low again in our lifetimes, if ever.  So obviously, I believe there has never been a better time to consider refinancing a higher rate mortgage or even a making a first time home purchase.

How Will Refinancing Help Me?

Depending on what your current interest rate is, refinancing your current mortgage can save you tons of money, as well as many years of payments over the life of the loan, which will work to get you closer to being free from debt much earlier than you otherwise would be.

Here’s a little demonstration to show just how refinancing your mortgage can benefit you.

Compare Mortgage Rates

Let’s say you got a $250,000 loan a few years ago on a 5.5% loan for 30 years ( I recommend 15 years or less, by the way).  Your monthly payment would be $1,419 per month for 30 years.  The total amount of interest you end up paying over that 30 years comes to $261,010.  Which means that in order for you to pay off the loan in 30 years you would end up paying a total of $511,010 on that $250,000 loan (which is $250,000 principal + $261,010 interest).   That’s a ton of interest my friends!

To illustrate a little further, let’s say you’ve been faithfully paying down that same loan for 5 years now, which means you now have 25 years of payments left and you still owe $230,791 in principal and $193,631 in interest.

You’ve seen that rates are really low right now so you decide to take a look at refinancing your loan.  What are your options?

When you still have a large number of years to pay on your current  loan, one of the best strategies you can use is to cut as many years of payments as possible out of your life.

Why?  Because it commits less years of your life to paying those monthly payments and it ends up saving you a HUGE amount of interest.

So with that knowledge, let’s take a look at two strategies of you can use to improve your situation through refinancing using the same numbers from the examples above.

Strategy  #1-  Lower Payment, Less Years: You decide to refinance your remaining 25 years of payments into a 20 year mortgage at 3.5%, which is a competitive rate at the moment.  Your new payment would be $1,338 ($81 cheaper) and you just cut 5 years of payments out of your life.  Even better, you also end up saving $103,184 in interest over the life of the loan.  That’s over 100 G’s back in your pocket over 20 year’s time just because you refinanced.  WOW!!!

Strategy #2- Higher Payment, Even Fewer Years: Now let’s get a little more serious and look at refinancing that remaining 25 years using a 15 year loan at 3.5%, which at the current rates is a little higher than average for a 15 year loan.  When you do this, you will cut out an entire decade of house payments in this scenario.  However, your payment goes up to $1,650, so you’ll be paying $230 more every month.  But the killer part is, now you’ll save a total of $127,443 in interest payments over that 15 year span.  Sweeeet!

This is how you set yourself up to become richer over time.

You set yourself up for greater wealth by simply asking the right questions.

Instead of asking “How much will my payment be?”, start asking “How much interest will I be paying?”  That’s the kind of question that rich people ask themselves.

When you start to think about money differently than the average Joe and begin asking the right questions, you start succeeding with money.  Doing what Joe and Jane average consumer do with their money will get you deep in debt and keep you there, because the average Joe and Jane are broke.

Right now is probably the best time in history to own a home in most areas of the country, but the mainstream media hasn’t been talking about that.

Prices are starting to stabilize somewhat and are at the lowest levels in years.

Mortgages are the cheapest they have ever been.

Although I don’t condone debt, I won’t make fun of you if you have a mortgage that makes sense (15 years or less, 20% down payment, payment no more than 25% of take home pay).  When it comes down to it, if you make the effort to understand money and how to use it well, and what the true consequences are if you don’t, then you will succeed with money.

Refinancing your home might not be right for you at this point in time, the numbers just may not work in your situation, but now is a great time to check and see because the rates are so low right now.

Understanding why and how you should refinance and whether it’s a good time for you to do that is just one piece of the puzzle that can help start you down the road to prosperity.

So make the effort and you can save some major bucks!

If you ready to Refinance, check out the mortgage rates in your area:



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About

Tushar Mathur has been blogging about Personal Finance since January, 2007. This has helped him recognize what topics readers like and relate to. The goal is to spot good news-worthy info and get it out to the public as soon as possible. Tushar Mathur maintains this Personal Finance blog called Everything Finance. The blog articles fall under these categories: Investing, saving money, shopping, blogging and making money online. Send an email at tushar@everythingfinanceblog.com

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