When Is It The Right Time To Refinance?

When Is It The Right Time To Refinance?

I’ve been getting this question a lot lately, and mostly because of how good the interest rates have been.

Well, I’m going to use this example and it should help clarify how beneficial it can be to refinance into a lower rate when they are available.

Loan Example:

- $200,000 loan balance

- 7% interest rate

- 30 year fixed rate

- $1330.60 (principal & interest payment)

- With this first payment, $163.93 goes towards paying down your loan balance and $1166.67 goes to pay the interest. Keep in mind, as you continue to make payments, the amount towards the principal increases, but it is only about $1-$2 more every month.

Loan Example with lower interest rate:

- $200,000 loan balance

- 6% interest rate

- 30 year fixed rate

- $1199.10 (principal & interest payment)

- With this first payment, $199.10 goes towards paying down your loan balance and $1000.00 goes to pay the interest.

You have 2 benefits going on here:

1. Of course the monthly payment is reduced. In this example, the payment is reduced by $135.50 every month!

2. When you take the $1166.67 of your payment that goes towards interest and subtract it from the now $1000.00 of your payment that goes towards interest, that is an additional savings of $166.67 every month of the interest you were paying!

* The interest savings over 1 year is about $2000.00!

* The interest savings over 5 years is about $10,000.00!

Doesn’t everyone want to pay less interest on the money they are borrowing!

You also need to keep in mind the closing costs you are paying when refinancing. It needs to make sense and it will if your savings pays for the costs of doing the loan. After your benefits pay for the costs of doing the loan, you will benefit from there on out. Sometimes it takes a year, sometimes is takes a few years. A good question to ask yourself is how long am I going to have this loan?

Please contact me with additional questions jbucio@hmcdirect.com or go to www.homebuyingmortgage.com for more mortgage advice.

Hope this helps!

Joshua Bucio/
Senior Loan Officer