What is the Best Refinancing Rate for You?
If you’re looking to save some money on your mortgage, you might be shopping around for a refinancing rate that is going to reduce your monthly payment and lower the amount of interest you pay overall.
Many who signed for a adjustable rate mortgage also know that their rate is about to reset to a higher amount which means they may have a higher mortgage payment that might even be out of their reach financially. If you’re considering a refinance of your existing mortgage, how can you know if the refinancing rate you are offered is the best option for you?
Keep in mind that refinancing a mortgage means some money up front. You are typically charged prepayment penalties just for this option and also need to pay a lot of fees involved with the process – appraisal fees, inspection fees, broker fees, and so on. Figuring these amounts as compared to the refinancing rate you’re offered is going to determine if the rate is right for you.
This involves some math but it’s necessary to do in order to make the best decision. You need to take the new refinancing rate you’ve been offered and figure your new monthly payment, and how much this will save you every month. You then need to compare this number to your fees and penalties involved with refinancing. How long will it take you to save the amount of money you get charged for the refinancing process?
If you’re saving only a small amount on your monthly payment and know it will take years to reach that breakeven point, then this new refinancing rate might not be right for you. Usually a homeowner can take steps to improve the rate they’re offered such as paying off other bills to increase their credit score or saving money to pay points at closing in exchange for a better rate.
Some so-called experts say that only if you’re offered a refinancing rate that is at least two percentage points lower than your current rate should you actually refinance. While this is sound advice, it’s also not a hard and fast rule. That breakeven point is really the determining factor that homeowners should consider.
If it makes sense to you to go through the process for the amount of money you would save, then no one else can tell you otherwise. It’s also important to consider that getting a lower refinancing rate, even if it’s a percentage point or two, can save you hundreds and even thousands over the life of your loan.
Only you can decide if your new refinancing rate is something that makes the procedure worthwhile and if it’s right for you and your family’s financial health.
Anyone considering refinancing should speak to their lender to see what type of new refinancing rate they may be eligible for and then should do the math noted above. Only be exploring this option can you decide if it’s right for you.