For those who currently have a mortgage and are perhaps
curious about refinancing, is there a bona fide way to determine if refinancing
is a good idea or not? Simply making a few queries about refinancing and soon
online ads appear wanting to know if you’d like to refinance and why you
should. But is there an independent method to find out if a refinance makes
sense? Is there truly a value refinancing a mortgage? Yes, but it does take a
little math to get to that point.
Home owners can have various motivations about refinancing.
For most refinance transactions the primary reason is because interest rates
have fallen and current market rates are lower than what is currently on the
note. Mortgage rates have been at or near historical lows for years now and
even though most expect rates to gradually rise over the next several months
and perhaps into 2018, rates are still very attractive. All one needs to do is
research where the 30 year fixed rate has been over the past 20 years to see
that. Yet the value of a lower rate means borrowers can pay less interest each
month to the lender, saving them money and increasing liquidity.
Another solid reason to consider a refinance is to shorten
the term of the loan. Most loans issued are fixed rate loans and most fixed
rate loans are of the 30-year variety. For someone who has had a 30 year loan
for a few years and wants to reduce the interest paid to the lender then a
shorter loan term can be a strong motivator. A shorter term means less long
term interest paid to the mortgage company and kept in the borrower’s bank
Finally, for those who elected to take out an adjustable
rate loan in the form of a hybrid, such as a 5/1 ARM, it might soon be ready to
change out from the initial five year fixed term and into an adjustable rate
mortgage that can adjust once per year. By refinancing out of the hybrid and
taking advantage of today’s low fixed rates, there’s still an opportunity. If
the borrowers intend to keep the property much longer than originally intended,
then refinancing now is probably a pretty good idea.