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Many homeowners wonder if and when they should refinance their home. With lenders offering rates well under 4%, many people would jump at the chance to refinance their mortgage, yet some homeowners argue against refinancing while rates are low. There are two main reasons why homeowners don’t refinance when rates are low. Conventional wisdom says that you shouldn’t refinance unless you can save at least one percentage point more on your interest rate. The second reason is that it doesn’t make any sense to refinance until your loan hits the break-even point. Both of these arguments sometimes make sense, but can be misleading much of the time. To learn more about financing and home values, visit The Housing Hour, a website dedicated to educating home owners and home buyers on all things related to real estate.
The old adage that you should save at least one percent on your refinance has been around since the 50s, when closing costs were high, and loans were small. Most homeowners back then would keep their homes until they passed away, and loans were often under $60,000. With the larger sized loans of today, refinancing can make sense, offering six times the savings of the old days. In today’s market it would make sense to refinance to save even a quarter of a percentage point.
As for the break even argument, many homeowners will refuse to refinance because they are thinking that they will never be able to make up their costs. This is commonly known as breaking even. This method is flawed because it would never allow anyone to refinance their home during a lifetime. This means nobody ever moves, or wants to take cash out of their home equity for any reason. (You might find out Online Calculators useful in determining your potential savings).
No Cost Loans
If you really want to save money and pay nothing at closing, consider getting a no cost or no money down mortgage. You can decide to refinance the moment you can lower your rate at no expense. The good news for homeowners is that zero cost mortgage loans are backed by the FHA, VA. Most of the time, with loans that are larger than $250,000, you can get a mortgage plan that covers your closing costs by increasing your interest rate by a quarter of percent. For loans above $400,000 the increase is even lower. You can obtain a no closing costs mortgage loan anywhere in the United States.
There are a lot of factors to mull over when you are thinking of refinancing your home. The professionals at MIG are here to help. If you are ready to start looking at quotes, contact one of Mortgage Investors Group’s mortgage experts today.
