Refinance the mortgage or not? It’s not always the best.
The many mortgage brokers that call me all tell me the same thing, with interest rates as low as they are now and by the way they are only going to go up, isn’t it time for you to refinance and lock in that new low rate?
What they don’t tell you is that more than half of the refinance candidates would be better off financially not refinancing. The brokers get paid on every refi so asking them if it is beneficial to you to refinance is not the best advice. The mortgage professionals typically point out the low interest rate and the lower monthly payment but nothing else. They don’t tell you that if you are refinancing a twenty-seven year mortgage that you are increasing your payments by three years!! Also, when the broker is talking they often say that the refinance will be no out of pocket expense to you and you are thinking cool, no cost. But that is misleading. The costs are often rolled into the mortgage balance.
Most folks when looking at whether they should refinance or not look at only the interest rate and the lower monthly payment. And most often the decision is made on just the monthly payment reduction. Even the refinance calculators do not show you the total costs of a refinance. All they give you is the monthly payment savings amount and then divide that by the cost of the refi and then in summary give you the number of months to recoup the initial cost. That always is some number of months so that calculation always shows you that it is beneficial to refinance (assuming the new monthly payment is lower than the original payment).
They conveniently forget to show you that now your mortgage term is now longer and so your overall cost over the life of your loan is higher. But if you look at the longer duration of the mortgage and take the mortgage payment and times it by the increased number of payments you get a rather large number. But since you have a monthly payment savings you divide that large number by the monthly savings to get a number of months it will take to break even. So it would make sense to refinance to a lower interest rate loan if you plan on keeping your loan longer than the break even point.
If you are familiar with United First Financial MMA program there is one other calculation that can be done to insure that it would be beneficial to refinance or not. Your agent can run the new numbers through the Analysis software. The Analysis takes into account the lower interest rate, the longer mortgage duration, and the increased cash flow created by the monthly savings rate. Then and only then can you be sure the refinance would be beneficial.
Don’t be taken by a lower monthly payment. Always ask for the TOTAL COSTS.
Tags: calculators, monthly, mortgage, payment, refinance, savings
March 6th, 2009 at 3:59 pm
Rose:
Thank you for posting some common sense information regarding refinancing. In most cases, it is the absolute worst thing that a person can or should do! If you’d like an example with some real numbers, you could visit my Blog article: http://jabfinancial.com/2009/02/02/refinance-or-dont-refinance-that-is-the-question/
Also thank you for spreading the word about United First Financial and the amazing Money Merge Account system that they offer! I believe it will be the salvation of the American people’s debt crisis.
Joe
March 16th, 2009 at 9:11 pm
Hi,
Everything dynamic and very positively! 🙂
Thank you
Zoran
January 9th, 2010 at 5:42 am
Great information! Thanks!
January 23rd, 2010 at 5:25 pm
I look forward to reading your posts. Thanks for all the work!
January 24th, 2010 at 7:38 am
Hey, I just wanted to say what a brilliant website. I really enjoyed it and found it interesting reading. Awaiting your next post!
January 24th, 2010 at 7:50 am
Me and my girlfriend come to your site often. We love reading your posts. Thank you!
January 27th, 2010 at 10:35 am
You have some great articles here. Thanks for all the work posting them. I’ll be back for sure!
May 29th, 2010 at 9:35 am
Home mortgage interest how calculated?
May 31st, 2010 at 8:51 pm
hey,Great blog post dude! i am just Fed up with using RSS feeds and do you use twitter?so i can follow you there:D.
PS:Do you thought about putting video to your blog posts to keep the readers more entertained?I think it works.Best regards, Syreeta Shillingburg
June 16th, 2010 at 3:08 am
A well written story. I’m an online gamer and I’m always looking for stuff like this.
September 11th, 2010 at 5:43 am
I like to read your blog a couple times a week for new readings. I was wondering if you have any other topics you write about? You’re a very talented writer!
September 15th, 2010 at 12:59 pm
The design for your blog is a bit off in Flock. Yet I like your web site. I may have to install a “normal” browser just to enjoy it. 🙂
September 17th, 2010 at 12:05 am
Just wanted to comment and say that I really like your blog layout and the way you write too. It’s very refreshing to see a blogger like you.. keep it up
September 17th, 2010 at 1:32 pm
Title…
What a great post!…
September 18th, 2010 at 3:22 pm
Just wanted to comment and say that I really like your blog layout and the way you write too. It’s very refreshing to see a blogger like you.. keep it up
September 20th, 2010 at 5:25 am
This post was very nicely written, and it also includes numerous useful details. I appreciated your professional manner of composing this article. You have created it is easy for me to understand.
September 20th, 2010 at 10:17 am
I force to practice mi English as I required to say http://roseragan.com/2009/01/27/refinance-the-mortgage-or-not-its-not-always-the-best/ is my favorite blog in English. You share me, I share video.
September 22nd, 2010 at 7:40 pm
Me English no good, but had to say me like what you say. Thank you from Panama.
September 24th, 2010 at 1:38 am
50 12 months home loans 50 years is actually planned to pay off loans credit time period is too lengthy, the actual monthly payments lower than other loans.
September 27th, 2010 at 6:54 am
I usually don?t post in Blogs but your blog forced me to, amazing work..
September 30th, 2010 at 12:44 pm
Super-Duper site! I am Loving it!! Will come back again, I’m taking your feed also, Thanks
October 11th, 2010 at 12:45 pm
Great info, I’d say thanks to admin becaus i’ve read here a lot useful knowledge. I will definitely subscribe RSS. Bye!:)
October 31st, 2010 at 11:12 am
Fantastic Website! I was wondering if I might be able to quote a portion of your pages and use a handful of points for a school assignment. Please let me know through email whether its ok or not. Thanks
November 8th, 2010 at 11:00 pm
Took me time to read all the comments, but I really loved the post. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always good when you can not only be informed, but also encouraged! I’m sure you had fun writing this post.
November 9th, 2010 at 6:51 am
I hope you will keep updating your content constantly as you have one dedicated reader here.
November 11th, 2010 at 10:52 pm
i definitely agree