Refinancing Methods

Refinancing Methods

As you may know, fixed mortgages were almost at their lowest in almost 30 years. If you are one of the many people who took out mortgages a few years prior to that, you may be wondering if you should look into refinancing.

If you have a mortgage that was taken out within the past five years, it may be worthwhile to if you can get the financing at least one or two points lower than your current interest rate. You should plan on staying in the house long enough to pay off the loan transaction charges.

Based on your situation, you will have to see which type of mortgage suit you best. For example, if you plan on staying in your home for several years, and the current interest rate is rising, your best bet is a fixed-rate mortgage. Conversely, if you will be moving within a few years, an adjustable mortgage would be best. Please make sure that you will be able to cover the increasingly higher payments in the event that interest rates rise.

One way to use refinancing to your advantage is to take out a new mortgage for the same duration as your old one. The lower interest rate will result in lower monthly payments.

For example, if you took out a $150,000 30-year fixed-rate mortgage at 7.5 percent (including transaction charges), your monthly payment is now $1,049. Refinance at 6 percent with a 30-year fixed-rate mortgage of $150,000 (including transaction fees), and your payment will be $899 per month. That’s a savings of $150 per month, which you can then use to invest, add to your retirement fund, or do with it whatever you please.

Another option is to exchange your old mortgage for a shorter-term loan. Your 30-year fixed-rate payment on a $150,000 loan was $1,049 per month. If you refinance with a 15-year fixed mortgage for $150,000 — including transaction costs — at 6 percent, your monthly payment will be $1,266. This payment is only $217 more than your previous mortgage, but your home will be fully paid for several years sooner, for a savings of more than $150,000! And some banks around the country are beginning to offer 10- and 20-year mortgages.

If you are considering refinancing your home, please consider speaking to one of our financial advisors at Federal National Funding by calling 201-342-3300.