Should I refinance my mortgage - interest rates are lowest since 1960s
Should I refinance my mortgage? With the Federal Reserve cutting its target for the federal funds rate to somewhere between 0 percent and 0.25 percent, and promising to keep it there for some time, whatever that means, this was a question that literally flooded our email Inbox. Come on now, of course you should. This is not a rocket science. And, as my boss I worked for years back, used say, it doesn't take a Ph.D. As long as you save money on your monthly payments, you should refinance.
Should I pay closing costs, or should I not. Of course, you shouldn't, if you have a mortgage large enough, so your broker can make a buck, cover your closing costs, and most importantly, save you a buck. If you have a 720-plus middle credit score, at least 20% equity in your house and sufficient verifiable income and assets, the no-closing-cost deal should cost you no more than .375%. That is, the interest rate on the new mortgage will be .375% higher than the rate obtained, if you decide to pay closing costs yourself. The difference could be as little as .25%.
Should you refinance if closing cost can't be covered. See how much you save per month, figure out how many months you will be staying in the house with the new loan - I know how hard this is, and then see if it make sense. Still don't get it? Here is the example. Suppose you have $200,000 mortgage at 6.5% over 30 year period, so your monthly payment is $1,264.14. You can get tomorrow the rate of 5.5% at the cost of $2,000. With a new monthly payment of $1,135.58 you save $128.56 a month. Dividing $2,000 by $128.56, you get roughly 15.5 months - that is the time for you to break even. Everything afterwards is your savings. So you tell me if you should refinance and pay closing costs.
Even if you have some issues, like not so excellent credit score or less than 20% equity in your house, you can still find a real steal out there. As long as your verifiable income and assets are sufficient.
Should I refinance my mortgage with my bank, new bank, credit union or find a mortgage broker? If you have everything perfect - income, assets, existing equity and credit score, check with your current mortgage holder and see if it is willing to simply drop the rate without refinancing. Tell them softly, that you could leave. Personally, I would go to the mortgage broker, no, not because I am one too, but because good ones are much more flexible and have way more products and possibilities than your one bank. Banks are often reluctant to cover closing cost, or let me put it that way - a mortgage broker can get you as good of interest rate with no closing costs, as your local bank offers without covering a dime. Credit unions are normally have unbeatable interest rates and few other things going for them, but almost never cover costs, which are rather high, often in vicinity of $3,000. If you are a member with a large mortgage and can save more than 1% on interest rate cut, credit union is probably your best choice, but do make sure that rate is the best by far and by a lot.
So this is my answer on Should I Refinance My Mortgage question. Hope it helps.
Thu Dec 18, 2008 12:12AM by Tony | More in Mortgage | Comments (0)
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