how can I save money by refinance? is 1 point worth it what about half a point? lower then what I have?
I bought a home last year and now the interest rate are lower then what I got when I purchased my home I feel I have good credit and can the payment I have to pay for rifenance go into the new loan if I qualify to refinance? or no? are there any other fees that will not roll into the new loan that I would have to pay? thanks in advance
Public Comments
- None of the closing costs can rollover into the new mortgage. You do not have any equity in the house. Unless the rate is 2% less then your current, it is not worth it.
- Look at your closing cost and fees. I will give you an example. Many loan officers can do this just call a local broker. Lets say your principal balance of the loan if you pay it off on May 1st is 200K. Your current rate is 6%. A lender says to you, your new principal balance on May 1st will be 200K. Not a dime added to your loan. All the fees will be paid in YSP. We can lower your rate to this number. But it wont cost you a thing on the front or the back. Why not.... I do it all the time. But dont add anything to your front, and make sure your principal is the same from the payoff date to the new start date. You didnt have to do a thing other then making your rate better. You only run into problems when the broker says they have to make 5,000 on your 200K loan. Find a broker that will say I will make 1000 on your 200K loan. They can cover the fees with the YSP. Better to do 10 a month then one a month. Plus why would they want to charge you 5K and make your rate less. When they can charge you 1K (not charging you a penny) and keep doing it over time. Lazy I guess. After the first many will streamline. The loan can be done, just force the hand.
- Discount points only lower your interest rate. They are tax deductible, but consult your accountant for your specific situation about that as I am not one. To determine if paying discount points are worth it, find out the cost of the points, and how much it will lower your monthly payment, and then figure out the return on the cost/investment for doing so. Example: a 500K 30 yr mortgage @ 6% costs about 3K per month, without including taxes and insurance. 1 point is 1% of the loan amount, or 5K. Therefore a homeowner that wants to pay 2 points (10K) would have to see a difference of about $280 per month to have a return on investment/cost within 3 years. The rate would have to be 5.125% for a return within 3 years. There are no fixed amounts that a point will buy you in rate, and the amount that a point will buy you will vary from one day to the next based on market conditions, and will vary from one place to the next. Also, the more points you pay for, the less your rate goes down, as you start eating away the bank's margin. Depending on how quickly you want to see a return and how long you plan on living in the home, you make that decision for yourself. Typically if you were refinancing and only refinancing your mortgage because rates went down, a bank would want to see you recover your closing costs with 4 years. Basic rule of thumb is that you would want the payment to pay itself back within 3-4 years. As for the costs, yes, there will be costs, but they vary from one back to the next depending on the providers they use for the appraisal, title, etc, so you need to reach out to them. To figure out your break even point, do the same you would above, just adding all your closing costs together and taking the diff between your newpayment and old payment and dividing that into your costs... make sense? You need to go to a bank to get exact figures for you though based on your credit, so you have accurate numbers to work with.
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