With interest rates at 50 year lows, many people are interested in refinancing their mortgage.   But, before you decide to refinance, you need to consider other things besides getting the lowest interest rate.

• Why a Low Interest Rate isn’t Key:  The question to ask is how much will lowering the interest drop your monthly payment, and how long will it take you to break even, after paying the closing costs and fee’s.   If your costs to refinance are $8000 and lowering your rate 1 percent saves $200 per month, you will need to stay in your home a minimum of 40 months to break even.
• Consider How Long You Have Paid on Your Existing Mortgage:   If you have paid on your current loan for 6 years and refinance with another 30 year loan, you will pay 6 years of interest again and you will owe for another 30 years versus 24.

Some Smart Idea’s to Discuss Before You Refinance

•  Take the amount you would have to pay to refinance and pay down your mortgage balance.  By pre-paying a 30 year loan, you can shave off thousands of dollars over the life of the loan.
• Make 2 additional principle payments per year and cut 9 years off a 30 year loan.   Make 3 extra payments per year and you’re down to 16 years to pay off.
• If you are currently paying on a 30 year mortgage, take a look at refinancing with a 15 year mortgage.  You pay the house off in twice the time because much more of the payment applies to the principle.  In addition, 15 year mortgages offer lower interest rates, which means the payment is not much higher than on a 30 year loan.

Unless your current loan is 2 percent higher than current rates, it probably will never make financial sense to refinance.   If you plan to stay in your home for 10 years, then it may make sense, but only if you cut the length of the loan term.

Thank you for visiting Why 6 Percent.   If you are selling by owner, call us to get your home on the MLS and Realtor.com as a part of your marketing program.   Without these powerful tools, your chances of success are slim in this market.