Is it worth paying closing costs to refinance? By Lori Slings, mortgage consultant, Valley Bank, Altoona
When I first entered the real estate business, the interest rate had just taken a huge drop and was at 9 percent — 1991. Everyone could not believe we were finally seeing interest rates in the single digits. It was a big deal. This was when the fax machine was just becoming popular as well.
Needless to say that now, as we enter the last quarter of 2012, interest rates have dropped more than 6 to 7 percentage points lower then 1991. Yes, I have refinanced some homes numerous times. Each time your lender needs to investigate what the cost to refinance your home will be versus the benefit of refinancing your home. Then the lender will take a look at how many months it will take for you to reap the benefits of that refinance and cover the costs to close on a new mortgage.
Currently those who refinanced in 2010 are seeing substantial benefit to refinancing again in 2012. At this point, they have gained enough equity in their homes with lower payments and extra payments that they are finding the ability to switch to a 15-year mortgage while leaving their payment about the same and dropping 10 to 13 years of payments off of their mortgage. There has been significant savings.
Dropping years of payments is a great reason to refinance, but others desperately want to get their house payment lowered. Great interest rates are allowing borrowers to also drop several hundred dollars off of their monthly house payment as well. Every person’s scenario differs, as does their savings amount per month on their payment. Regardless, my point being there is the possibility of saving significant money just by lowering your house payment.
Another benefit to very low interest rates currently is that home buyers searching for that starter home or step-up home are able to purchase more house then they could have two years ago when mortgage interest rates were slightly higher then they are currently. Yes, once again, it is possible to buy a home and have your house payment with taxes and insurance included lower then what you are paying for rent.
Keep in mind that these scenarios will not work for everyone in every situation, but they are worth looking into if you have not investigated for awhile. With a refinance, you need to have some available equity built up in your home as well, meaning you cannot owe exactly what your house is worth. You need to have paid down your mortgage loan debt to have room to refinance. Continue to stay aware of interest rates and how those mortgage rates could improve your situation or open up additional options for your family.Information provided by Lori Slings, Valley Bank, 160 Adventureland Drive, Suite H, Altoona, (515) 967-4700 firstname.lastname@example.org.