Real Estate 101: Do Refi's Make Sense?

There are many reasons homeowners refinance: to lock in a favorable interest rate, to lower their monthly payments, to withdraw equity they've built up in their home, or to pay off their mortgage more quickly. If you're thinking about refinancing, here are reasons to justify doing so:

• Lowering your interest rate by 2 points or more
• Lowering your monthly payment
• Changing an adjustable rate mortgage to a fixed mortgage
• You plan on living in the house 3+

Refinancing will include closing costs. Even mortgages that are advertised as having no-cost or low-cost closings have closing fees — they're just not called closing fees.

• Loan Origination Fee Discount Points
• Miscellaneous Lender Fees Appraisal Prepayment Penalty
• Title Company Fees
• Prepaids-Upfront payments of taxes and insurance

Use this simple formula to determine if a refinance is a good idea: Let’s say you have a $200,000 balance at 6.5% on a 30 year term. If you did a refi at 5.5% your new monthly payment would be about $130 lower. That is a savings of approximately $1,560 a year. If the total cost of the refi is $3,000, then it would pay for itself in just two years. If you intend to live in this house another 3+ years, the refi makes sense.

Refinancing isn't something you should enter into lightly; it can be time-consuming and expensive. But once you run the numbers, you may find the long-term savings will offset the costs related to refinancing. Then you can take the money you save each month from your reduced payments and put that to better use. To calculate how much money you would save with a lower interest rate, visit my website at http://www.joeywomblesellshomes.com/silver_mortgagecalc.asp.