Free Calculator - Should I Refinance?
Free Download Below - Mortgage Amortization Calculator with Extra Monthly Payments
Interest rates are incredibly low but, you may have just refinanced a few months ago.
Does it make sense to do it again?
In some cases, declining property values may be a barrier to your refinancing efforts. However, there are many options available to homeowners that you may not be aware of.
These options include special programs from Fannie Mae, Freddie Mac and FHA that will allow you to refinance your home with little or no equity, helping you to save hundreds of dollars each month on your mortgage payment. This can equate to thousands per year in potential savings.
How Much Will a Lower Interest Rate Change My Payment?
A good rule of thumb is to refinance when you can lower your mortgage payment by at least 3/8ths or .375% and the larger the principle balance, the smaller this may be.
For example if you have a 30 year mortgage that was originally $240,000 and your interest rate is 4.25%, your Principle & Interest payment would be $1,180.66. If you are able to refinance at 3.875% with no points and no closing costs, your payment on that same $240,000 would be $1,128.57, for a savings of $52.09 per month.
While this may sound like just a small savings on a mortgage payment that is near $1,200 per month, if you were to carry that savings out over 30 years, by multiplying the $52.09 by the 360 monthly payments, you would be saving $18,752 over the life of the loan. This may start sounding a little better.
The most important factor is that this interest savings is like found money, it won’t cost you thousands of dollars in closing costs...if you're working with the right lender.
[note color="#E7EB83"]Accelerate Your Amortization
Let’s look at this in another way.
Accelerating your amortization and sticking to a small extra principle payment each month can have a drastic effect on your interest expense over the life of the loan.
Option #1 for this illustration we’ll compare doing nothing, or sticking with the 4.25% rate you currently have. In this case your interest expense over the life of the loan would be $185,036.07.
Option #2 would be to refinance at the lower rate of 3.875% and sending the interest savings of $52.09 to your lender as an extra principle payment each and every month.
In this case your interest expense over the life of the loan would be $151,231.81.
By sending the extra payment that is really found money anyway, you will save $33,804.26 over the life of the loan. Partially from interest savings and partially from accelerated amortization. But 100% due to making the wise choice of refinancing.
By the way, your mortgage will be paid off almost 3 years earlier as well!
[caption id="attachment_1636" align="aligncenter" width="340"] Click Image to Download Amortization Calculator Spreadsheet[/caption]
This demo shows you how powerful a slight interest rate change combined with a small extra payment each month is and how much it can benefit you. In many cases the interest savings will be much higher and the savings much higher as well. Also, these are only illustrations and not a rate quote. Every situation is slightly different.
Now, this illustration will only work if you are able to refinance with no points and no closing costs. If your lender charges you $4,000 in closing costs, it may make sense to sit still unless you can save far more than .375%.
At Poli Mortgage Group, we specialize in the No Cost Refinance.[/note]
Fannie Mae and Freddie Mac Special Programs
We promised you some info on special programs from Fannie and Freddie that may benefit you.
Both Fannie and Freddie have programs that will allow you refinance your home with little or no equity. Fannie has what is called the Refi Plus program, and Freddie Mac has what is called the Relief Refi program. Give us a call at Poli Mortgage for more details on these great programs.
Also Fannie and Freddie recently rolled out HARP 2.0 which is a very powerful program designed to help homeowners who are literally underwater on their mortgage. In other words the home’s value has actually dipped below the value of the mortgage.
Please visit our main website for details on HARP.
FHA Streamline Refinance
This FHA program allows borrowers that are looking to refinance their existing FHA loans to do so while requiring minimal documentation. Credit history will still be a factor in the lending decision. In some cases no appraisal will be required. There are a couple of things to keep in mind with this program.
The first is that in order to be able to do utilize this program, you must be able to reduce your mortgage by a minimum of 5%, regardless of how much better the new rate will be.
The second thing to keep in mind is that as of this writing, FHA mortgage insurance premiums have increased across the board, including for Streamline loans. While this may limit the number of people that are able to participate in this program, per the 5% rule, there are still many that will be able to benefit.
In Summary: There are many refinance options available to you that could save you money each month on your mortgage payment. With a little extra thinking, you can turn these small monthly savings into thousands of dollars in savings over the life of your home loan.
Give us a call at Poli Mortgage Group so we can answer any questions that you may have about whether or not it is worth your time to refinance.
If it doesn’t make sense to refinance, we’ll let you know that as well.