Mortgage rates have dropped significantly in the past few weeks. The 30 year rate is now 4 1/2% in many areas. Does it make sense to refinance in the current environment? Absolutely! Credit restrictions will be tougher and there will be more paperwork and tougher scrutiny by the mortgage companies but the benefits are substantial. If your credit is decent, hundreds of dollars will be saved in lower payments. Look at your current mortgage terms. Review your current interest rate, monthly payment, whether your interest rate is fixed or variable and consider your financial needs.
For example if you have a $250,000 mortgage at 6 1/4%, your current payment is $1,539 for a 30 year mortgage not including insurance and taxes. At 4 1/2%, your monthly payment would be $1,266. This is a savings of $273 per month or 17.7% or your current payment. By using a simple mortgage acceleration program, the loan could be paid off in 21 years instead of 30 with a savings of $136,000. This can be done with no lifestyle changes. By using more advanced mortgage acceleration techniques, the loan can be paid off in 9-11 years with a total interest savings of $319,00.
If there is plenty of equity in your property it may be possible to get additional cash out with your refinance. However, evaluate this option carefully because it is increasing your debt. Shop around for the best rate and also compare the fees each company is charging. It is not necessary to use your current mortgage company to do your refinancing but if they own the mortgage, there may be less paperwork and lower fees with your current mortgage company. Also, check your credit scores and credit reports before you apply to make sure they are correct. A score above 680 will get you a very good rate.
Once the refinance is complete, use mortgage acceleration to reduce your payoff time and save hundreds of thousands of dollars in interest expenses. Even if you can't refinance, mortgage acceleration still can be used and save thousands of dollars. Even though your mortgage interest rate is important, it becomes irrelevant when mortgage acceleration is used and your loan is paid off in 9-11 years because the interest saving are so much larger than the amount saved by lowering your interest rate.
Jim Calaman is a financial planner, tax consultant and educator with over 25 years of experience in the financial services industry. For more information and our free newsletter on how you can save thousands go to:
http://www.payyourmortgagefast.com
or email me at easternadvisors@cox.net
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