This week, the Associated Press reported that mortgage rates hit truly historic all-time lows. A 30-year fixed mortgage is currently 3.49 percent and rates for 15-year fixed rate home loans are 2.77 percent, the absolute lowest in history. Indeed, there is no better time than now to refinance your mortgage. All the same, if you aren't sure whether or not a mortgage refinance is for you, despite the lowest rates we are likely to see in our lifetimes, consider a few clues to help you decipher exactly how much you can save by refinancing your mortgage by doing what I did.
Consider Your Mortgage Rate Today
I bought my house in 2004, during the real estate boom, and felt as though I was sitting pretty having a 4.99 percent fixed rate. Indeed I was, until the Fed cut rates to their current lows. For my own mortgage, and during my time as a real estate agent, my advice (and even the advice from the Federal Reserve) has been to refinance your mortgage when you can get your rate at least one half of a point lower than what it currently is -- obviously, more is better. When I heard the news that rates had dipped into the three's, I knew it was time to refinance my home loan.
Using Mortgage Calculators to Help You
I used a mortgage calculator from Bankrate that was specific to refinancing to pinpoint my possible savings. To refinance my fixed rate VA mortgage to a 3.5 percent fixed rate loan, I would have to come out of pocket with a little over $2,000 at closing. However, I would save $400 a month on my payment and over $121,000 in interest by taking my 30-year note down to a 20-year note by refinancing with a lower rate. Still, I wasn't quite satisfied. In the end, I opted to refinance to a 15-year term at 2.9 percent. This change only saved me $277 per month on my payment, but over $138,000 in interest over the duration of my loan.
Your Home Equity
When my husband and I bought our house, the VA (and our lender) did not require a down payment. As such, our equity was on the low end of the spectrum. However, we managed to leap over the required minimum 20 percent equity threshold, since I had been making biweekly payments for the last four years as well as paying an additional $200 to the principal each month.
Tip: Before you refinance, pay to have your house appraised or ask a real estate agent to put some comparable homes together to help you determine your home's value.
Home Refinancing By the Numbers
Before making any financing decision, I run the numbers, make sure that all of my documents are in order and ensure that we have the resources needed to cover any incurred expenses. By taking our mortgage from a 4.99 percent rate to a 2.9 percent rate and cutting our loan term by seven years, the amount of money we are saving in interest alone makes our decision worth every cent. Before you refinance, make sure you understand the numbers, and if you need a little help, ask a professional. Making informed financial decisions not only pays off, it pays you back too.
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