CAN I REFORM?
At least once a week someone will contact me about a postcard, email, social media promotion, etc that they found promoting this amazing low interest rate mortgage. Interest rates are currently at an all-time low and it may be a good time to consider refinancing your existing mortgage.
What are some of the main reasons for refinancing?
– Reduce your interest rate and monthly payment
– Reduce the term of your loan and pay off your mortgage earlier
– Consolidate your existing debt and reduce your total payments
– Get rid of monthly mortgage insurance on your existing mortgage
– Your new loan will be a fixed term against a variable rate mortgage
– Cash out to redesign your home, buy another property (second home or investment property), etc.
A general rule of thumb is when your new rate is a full point below your level (ie your rate is 4% and your new rate is 3%). However, you may have other reasons for refinancing when your new rate is not a full point lower. When you are consolidating your existing debt, I encourage you to find out what your mixed rate is (your mortgage and the debts to pay off) to find out does it make sense to refinance your mortgage and take out money. There is a simple formula you can use to do this.
First, multiply your loan amount and credit card balance by the flat rate to determine your weight factors and give the total loan amount and all loan features as below:
Loan Type Balance Rate
Mortgages – $ 175,000 x 3.75% = 6562
Credit cards – $ 25,000 x 9.0% = 2250
Total – $ 195,000 8812
Divide the total number for each loan weight by the total loan amount and then multiply by 100 to calculate the compounded rate or average weight.
8812 / 195,000 = 4.50%
As long as you have a large interest rate on your mortgage, your mixed rate for your debt is closer to 4.50%. This should make it easier to consider a higher interest rate when consolidating your debts.
The most common installments include a 15-year and 30-year mortgage, but you may be able to reduce the term of your loan (20 or 25-year) and keep your payment as normal. the same. This is a good approach if your goal is to pay off your mortgage as soon as possible.
The costs associated with refinancing may include title work, appraisal, credit report and possibly processing tax. You may be asked to reset a new escrow account for the lender to pay your insurance and fees each year. The total cost of refinancing your loan can be between $ 3,000- $ 4,000. Depending on your loan to value (new loan amount divided by the value of your home), you may be able to finance these fees to your new mortgage. If your goal is to reduce your monthly payment, I recommend that you recoup these costs in your monthly savings within 36 months. For example, if your total fees are $ 3,500 your new monthly payment should save you at least $ 98 per month on your payment ($ 3,500 divided by $ 98 = 36 months).
It is usually best to fund these fees into your new loan vs pay for them in your pocket. Paying $ 3,500 out of your pocket may save you an extra $ 15 on your payment, but it will take you almost 20 years to recoup the savings on your payment.
I encourage you to reach out to your lender and they can give you the many loan options available. You can contact me directly if you have further questions.
Wishing you a Happy New Year!
Jim Kaiser
Branch Manager, NMLS # 1721861
Cherry Creek Mortgages, LLC, NMLS 3001
Jimkaisermortgages.com