The train is leaving the station. Now you have the chance of a lifetime to save over $100,000 by refinancing your present mortgage. Sound too good to be true? Not at all. Before we crunch the numbers, you should have a basic knowledge about how a mortgage works and what expenses you are likely to have.
Why is it so Important to Refinance Now?
Since 2009, the US Federal Reserve has kept interest near zero. Now, with the economy improving and unemployment dropping, the Fed may be forced to raise interest rates to keep pace with the economy. US Federal Reserve Chairwoman, Janet Yellen, has hinted that the Fed may raise rates as early as next year. If this is true, it leaves only a few months to take advantage of today’s low rates. At present, a 30 year fixed mortgage rate is 4.17% and a 15 year fixed mortgage rate is 3.43%. Markets usually ANTICIPATE events. That being the case, we could see rates go up as we get closer to the Fed’s actions. This is why we are now in a “sweet spot” when it comes to getting the best rates.
What You Need to Get Started
You will need at least $4,000 to $5,000 of ready cash for your closing costs. Keep in mind that you will be paying for many of the same items that you did in your present mortgage. Here are the basic items:
Loan Origination Fee
Title Insurance and Title Search
Points. These are usually 1% of your mortgage
Home Insurance. You may be able to transfer your present policy.
The are fees for FHA, Rural Development Service & VA mortgages.
Be wary of “come on” offers where the lender pays for your closing costs. They simply will raise you interest rate.
Also be wary of lenders that will “roll over” your closing costs into your mortgage. You will be paying interest on the added costs for the entire length of your mortgage.
Know your credit score. Banks and lenders have tightened their standards and now require higher scores. A score of 720 or higher is needed to get your best rate. Lower scores may pay higher interest rates.
Your lender must give you a “good faith” summary of your costs within three days. Be sure to “lock in” your rate. If not, you may end up with a higher rate at closing.
Check to be sure that you do not have a “pre-payment penalty” in your mortgage. This could cost you up to six months payments if you decide to pay off your mortgage early.
Most persons don’t realize how important TIME is in a mortgage. Let’s say you bought your home at age 30 with a 30 year fixed mortgage. You will make 360 payments and finish paying your mortgage at age 60. Now if you SHORTEN the time to 15 years, you make only 180 payments and your mortgage is paid off at age 45. You have all this extra money to save for retirement.
Now let’s crunch the numbers. First go to www.mortgagecalculator.org
This will give you mortgage payment and interest. Let’s work with a $200,000 mortgage.
30 Year Fixed at 4.17%-Total Payments for 30 years equals $425,832.81
15 Year Fixed at 3.43%-Total Payments for 15 years equals $293,621.98
Savings is a huge $132,210.83
Notice that you gain by getting a lower rate and you are mortgage free at age 45. Plus you’ve made over $132,000.00