Why Refi?

Mortgage rates are at an all-time low, I know, heard it before! Well, right now a conventional conforming ($417,000 loan or less) 30 year fixed can be obtained at an interest rate of as little as 4.125%. If you took your mortgage loan out prior to 2010, your rate is higher than that, considerably so in fact.

There are a lot of reasons that people become skeptical of refinancing for a lower rate. Many are concerned that the cost of a refinance is not worth the monthly savings, others are concerned about "starting over" and beginning their 30 years again. Others simply don't want to bother with it, gathering paperwork, meeting the appraiser to inspect the home and dealing with the stress is just not worth it to them. These are all valid concerns, however in many cases it still may be quite worth while to explore the option.

1. Many times one can refinance to a lower rate and pay no closing costs. Depending on the interest rate that you choose, you may get a credit from the lender to cover all your costs. You go in with a $400,000 mortgage, and you leave with one - with a much lower rate. Saving you thousands upon thousands over the life of the loan.

2. In other cases you may not be able to cover all costs with a lender credit. But, let's say the closing fees equal $2500 and that you have a 5.25% rate now on a $400,000 loan. Your current payment is somewhere around $2,200 per month. If you lower that rate to 4.25%, you'll begin paying $1967 per month. Saving you over 200 per month. Which means that you'll have recovered the cost of the refinance in 13 months, and will be saving the difference for the 29 years after that! That could be a savings of roughly $80,000 in interest over the life of the loan.

3. You don't have to start over. You can try to obtain a shorter term mortgage, such as a 20 or 15 year fixed at the lower rate - or you can elect to borrow on a 30 year note again but pay that difference between your old payment and your new one directly into principal each month. You won't save monthly but you will certainly pay your new loan off much sooner than if you stay on your current course. In the same scenario above, assuming your are in your 3rd year with your current loan, you'd pay off the home in 3 less years - saving 79,000 in mortgage payments.

In other words, everyone should look into it. Even if you decide to stick with your current loan, you can still make that decision based on professional information.