Should I Refinance My Mortgage?

14 Jul

Phone calls flood in every week about refinancing to a lower rate; as soon as you walk in the door your phone is ringing – “We’re calling to help you take advantage of the insane low mortgage interest rates…”

People are still lining up to get their application in and refinance their mortgage. But while it’s true that refinancing has the potential to help you reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for everybody. So before you make a commitment to refinance your mortgage, it’s important to do your homework and determine whether such a move is the right one for you.

Most of us follow the rule that refinancing will only make sense if you can lower your interest rate by 2 or more points, such as going from 6 to 4 percent.

But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you understand – and are comfortable with – the amount of time it will take for your overall savings to compensate for the cost of the refinancing.

Consider this: If you had a $200,000 30-year mortgage with a 6 percent interest rate, your monthly payment would be $1,199. If you refinanced at 4 percent, your new monthly payment would be $954.83, a savings of $244.17 per month.

Assuming that your new closing costs amounted to $2,000, it would take 8.5 months to break even ($244.17 x 8 = 1953.36).

If you plan to stay in your home for at least eight more months, then a refinance would be appropriate and you’ll save money. If you plan to sell the house before then, you might not want to bother refinancing because your out-of-pocket expenses would be more than your savings.

Don’t get finagled by the variability of the interest rate
There are two basic types of mortgages: those with “fixed” interest rates that do not change and those with variable rates, which often change after a predetermined amount of time has passed, such as one year or five years.

While an adjustable-rate mortgage (ARM) always offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM’s rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it probably makes more sense to opt for the security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up (within 3 years to be safe).

About the Author: Millie Gil has been a successful Licensed Real Estate agent for over 25 years in Florida.  Millie is Vice President of Bold Real Estate Group, a boutique agency committed to concierge personalized service for discerning buyers, sellers and renters of residential and commercial properties.  For more information please forward your request to

Servicing:  Port St. Lucie, Palm City, Jensen Beach, Stuart, Vero Beach,  Hutchinson Island, Fort Pierce,  Palm Beach, Jacksonville, Jacksonville Beach, Ponte Vedra Beach, Palm Coast, Neptune Beach, Amelia Island, Atlantic Beach, Fernandina Beach, Saint Johns, Saint Augustine, Daytona Beach, Fleming Island and New York real estate.

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