| By :
Mark Etinger
There are many ways to save extra cash on your home mortgage. While low interest rates can pique your interest and make you think about refinancing your home, these steps should help you decide if the decision is worth it. 1. The old heuristic of saving 2% on your “refi” is relatively dated. Today, determining whether you ought to refinance is based on how long you plan to stay in your home, and the length of time it will take to break even. Example: Let’s say you have a 30 year mortgage on a $460,000 home. You have a 6.61% interest rate and your monthly payment is $2941. If you refinanced at 6.11%, then your monthly rate would decrease to $2705. That’s a monthly savings of $236. Assuming that the broker fees amount to $5000, it will take 22 months to come out ahead. Do you plan to live in your home for almost two years? If so, then it would be worth it to refinance. If not, then it wouldn’t. 2. The annual percentage rate (APR) is only a part of how you should choose a loan. The mortgage term dictates how long you will have to pay the mortgage off. Longer terms usually mean lower monthly payments, even if the APR is slightly higher. Short terms usually offer lower rates, but result in higher monthly payments, and can wind up being more expensive in the long run. 3. The variability of your rate can change (ARM) or it can be static. While ARM’s may offer a lower rate at first, they are subject to raises according to the economy. These mortgages are good for short term buyers, but if you plan to stay in your home for a long time, a fixed-rate mortgage is a better bet. Keep in mind that with the low interest rates of recent years, they are bound to go back up pretty soon. 4. Points are what the broker charges up front. If the points are low, chances are the rates are high. Do the math before you determine which broker to choose. 5. Talk to your current lender about a refi. Since he already has all of your financial information it could be cheaper to go through him than to pay a new lender all sorts of fees. But don’t be afraid to shop around, do your research, and work out the figures beforehand. 6. Read the entire contract and don’t be pressured into doing something you’re not sure about. Refinancing your home should save you money in the long term. It may not be worth it to refinance unless you plan on staying where you are for a few years, but before you decide, figure it out for yourself by dividing the broker fee by the monthly savings. The resulting number is the months it will take for you to break even. If you do decide to refi, take the savings and set them aside for a long term investment like college or retirement funds.
|
![[Valid RSS feed]](http://www.articlesbacklink.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
