Usually homeowners refinance to save money, either by obtaining a lower interest rate or by reducing the term of their mortgage. Many borrowers now are refinancing to move from an adjustable (ARM) loan to a fixed rate. Another popular option is to cash out home equity for debt consolidation, education, or another investment.
The decision to refinance can be confusing since there are many different types of loans, with varying costs and interest rates. For basic refinance to lower your monthly payment, here’s a simple calculation:
Calculate the net cost of refinance
Calculate monthly savings
Divide the cost (#1) by the benefit (#2), and the result is the number of months to ‘break even.’ If you own the house longer than the ‘break even’ period, the refinance saves you money. Since most Americans stay in a home 4-6 years, many loan officers recommend a ‘break even’ period of not more than 24 months.
Since refinancing is a complex topic, consult one of our experienced professionals anytime you consider a change in your financial picture.
