When Does Refinancing Your Mortgage Make Financial Sense? - Trademark FCU
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When Does Refinancing Your Mortgage Make Financial Sense?

When you find the right house to buy, you can negotiate the price of the house but you can’t negotiate the interest rate of your mortgage.  The interest payment on the mortgage can sometimes end up costing more than the price of the house.  Fortunately, there are ways to lower your total interest payment and save money.

Looking back to the end of 2010, the interest rate for a fixed 30-year mortgage was 4.86%  APR*.  At that time, the mortgage rates were at the lowest point in 55 years. With the recent interest rate cut, mortgage rates are at an all-time low. Refinancing your mortgage to a lower interest rate is one of the smartest ways to save money. If you haven’t refinanced since your mortgage originated, you could save a lot of money.  Even if you have refinanced previously, it could still make sense to consider refinancing again to save even more money! 

How much money might you save?

The following example illustrates how a lower interest rate affects the interest payment over the term of a mortgage:

Say you bought your home in September of 2010 and took out a 30-year mortgage loan in the amount of $100,000 at a 4.86% interest rate. Assuming all payments were on time and no additional payments were made to pay the principle early, the total interest payment would be $85,694 over the 30-year mortgage.

Today, the principle balance on your mortgage would be $78,199 and you would have already paid $42,084 interest.  Assuming the mortgage is never refinanced, the remaining interest payment would be $43,610.

If you were to refinance now, here are some options that would save you money:   

  • Refinancing the $78,199 remaining balance into a 20-year term mortgage at the current interest rate of 3.625%, results in a total interest payment of $31,879. The change in interest rate saves you $11,731 over 20 years. 
  • Refinancing the $78,199 remaining balance into a 15-year term mortgage at the current interest rate of 3.125%, results in a total interest payment of $19,868. The change in interest and short term would save you $22,216 over 15 years.

Both situations provide significant savings in interest paid simply by refinancing the original loan to the current lower interest rate.  Even more savings can be realized by paying more towards the principle each month.

Want to see how much you could save?  Give us a call, shoot an email or stop in — we will review your current mortgage with you and find out what options could save you the most money.  Don’t let these great rates pass you by!

*Source: www.housingwire.com