9/13/2023 0 Comments Dave ramsey refinance calculatorYou could have a massive garage sale, drive for Uber, stop eating out for six months-you get the idea. However, there are lots of other ways to make money to cover closing costs. But if you plan to move before then, it’s not a good idea. If you plan to be in your home at least that long, it’s probably worth it. If your closing costs come in at $3,000 and you’ve estimated that you’ll save $100 a month by refinancing, it will take you 30 months, or 2 1/2 years, to recover your costs. To do this, you’ll need three pieces of information: your estimated closing costs, your estimated new monthly payment, and how long you think you’ll stay in your house. So, you need to run the numbers, starting with a break-even analysis. Pay off your home faster by refinancing with a new low rate! Yep, refinancing a mortgage comes with closing costs. While that deal sounds like a no-brainer, refinancing isn’t always worth it, especially after you factor in closing costs. That would give you a savings of $3,200 a year or $265 each month-who doesn’t want that? Even better, if you keep paying the same amount as you did with the 5.25% loan each month, you’ll knock out $3,200 more on the principal each year! Your mortgage will practically melt away! But now, you can get that rate down to 3.5%. Let’s say you have a 15-year fixed-rate loan with a 5.25% interest rate on a $300,000 mortgage. The right time to refinance is when you have an opportunity to make your current mortgage better with a new interest rate. But you can refinance your way out of your ARM and into a fixed-rate mortgage. That kind of unpredictability is a recipe for disaster. That dreamy low interest rate you got in year one could easily turn into a nightmarishly high rate in year five. We never recommend an adjustable-rate mortgage (ARM). So, if you’re looking into refinancing your mortgage and your new loan would be 80% or less of your home’s current appraised value, ask about having your PMI removed. It’s expensive and will slow you down from paying off your principal. PMI helps them cover the hit they’d take by having to sell your home at auction.īut PMI stinks. Basically, it protects them if you can’t pay your mortgage and the home goes into foreclosure. If your down payment was less than 20% of your mortgage when you bought your home, then your mortgage lender has required you to pay for PMI. Get rid of your private mortgage insurance (PMI). Plus, if you get a lower interest rate, then you can pay more toward your principal each month, accelerating your progress! That means you’re saving more, investing more, and have more to give away. The sooner you pay off your home, the sooner you’re keeping every bit of income you earn to yourself. If you have a 30-year loan, mortgage refinancing can help you reduce your loan’s term and get down to that 15-year sweet spot. Cha-ching! Reduce your loan term and become debt-free faster. Chances are pretty good that at some point over the years, a better interest rate than your original one will become available. Whether you’re in a 15-year mortgage (what we recommend) or a 30-year mortgage, that’s a whole lot of time for the market to change. Why Would You Refinance Your Mortgage? That’s right, lock in that lower interest rate. That’s definitely one major plus! But there are actually a bunch of good reasons why you might want to refinance your mortgage. Easy enough, right?įor a lot of folks, refinancing is a way to lock in a lower interest rate. The new mortgage loan then takes the place of the original-so you should still have only one loan and one monthly payment. Mortgage refinancing is getting a new loan for your home or revising your home’s original loan. You’ll still have some really important things to consider and steps to take before you sign on the dotted line, but we’re here to walk you through all of it. Refinancing your mortgage isn’t nearly as labor intensive as when you first bought your home. If you’re thinking about refinancing your mortgage but your hand is still cramping from signing your home loan’s original closing documents, breathe easy.
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