Summary
Refinancing, as a general rule, will cost 3-6% of the mortgage balance. For the $150,000 mortgage mentioned earlier, refinancing could cost $4,500-$9,000. The refinancing costs can be paid out of pocket or rolled into the loan amount. If paid out of pocket and using a refinancing cost of $6,750, a monthly payment saving of $192, it would take approximately 3 years to payback the refinancing costs. If the refinancing costs were rolled into the mortgage, the total mortgage amount would be $156,750 and the monthly payment saving would be reduced to $156.
The most common reason for refinancing is to reduce one's monthly mortgage payment. A homeowner with a current 30-year fixed mortgage of $150,000 at 7% would save $192 per month with at new loan at 5%. Another good reason is to convert an adjustable rate mortgage to a fixed rate, with a long-term predictable monthly payment. Some individuals refinance to improve their mortgage terms, such as reducing the length of their mortgage from 30 years to 15 years or eliminating private mortgage insurance (PMI) payments. Finally, if a homeowner desires to convert some of their home equity to cash for a major expenditure, such as college financing, starting a business or home improvements, refinancing may make financial sense.[...] if a homeowner desires to convert some of their home equity to cash for a major expenditure, such as college financing, starting a business or home improvements, refinancing may make financial sense.See the full content of this document
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Refinancing Your Mortgage - Does It Make Sense?'
As the economy works its way out of the recession, the Federal Reserve has indicated its willingness to keep interest rates low. As a consequence, mortgage rates are at the lowest levels seen in re...
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