How to Evaluate if You Should Refinance Your Mortgage

mortgage house How to Evaluate if You Should Refinance Your MortgageI know a lot of you are wondering whether you should refinance your mortgage.  You see all the news reports about record low interest rates and wonder if it’s worth it.   Regardless if you are considering an FHA loan refinance, VA refinance, Conventional refinance or other loan types, the evaluation is the same.

Adjustable Rate Loans

But before I get into evaluating whether to refinance your fixed rate loan, let’s talk adjustable rate loans.

If you have an adjustable rate loan – typically called a 5/1 ARM (or 3 year or 7 year) – AND there is a possibility you will own the house longer than the term of your loan – you need to refinance.

Rates will not get lower than this and you need to lock it in now.   Rates on a 30 year fixed mortgage (meaning the interest rate will not change and you have 30 years to pay it off) are 3.75 to 3.86% right now!  Rates this low are unheard of in the past – well forever.   Call a mortgage broker today.  If you need recommendations I have a real estate license and know some good lenders – send me an email at admin@savingtoberich.com or leave a comment on facebook and I’ll send you a list.

Fixed Rate Loans

Here’s how to evaluate if you should refinance or not.

  • Current Loan Balance x (current interest rate – new interest rate) = Savings per Year  (slightly overestimates savings)
  • Closing Costs (typically 1% x Loan Balance + $2000) / Savings per Year = How long it will take for the upfront costs to pay for themselves with your reduced mortgage payment.

Question – Will you be in your house longer than how long it will take to break even on the closing costs?  If so, then it’s time to refinance.

Notes:

  • Don’t get fooled by the “no out of pocket expense” refinance option.  That just means they are adding the closing costs to your loan balance.  That still means you are paying for it and the evaluation is the same.
  • Also, the prepaid escrow fees are not closing costs.  If given a good faith estimate of closing costs, subtract the escrow monies out before you run the above calculation.  You would pay those one way or another, they are just establishing an initial balance.  When you refinance, your old bank will send you a check for the amount in your current escrow account – so these usually cancel each other out.
I find using real number examples helps to illustrate a point, so here are some scenarios to consider.

Scenario 1:  Interest Ike has a current mortgage balance of 300,000 and an interest rate of 4.75% (thought to be a pretty darn great rate 18mo ago when they bought the house).  With today’s interest rates of 3.75% does it make sense to refinance?  **Interest Ike owns his dream house and does not plan to move within the next 20 years.

  1. $300,000 x (4.75%-3.75%) = $3,000 Savings per year
  2. Closing costs = $300,000 x 1% + $2,000 = $5,000
  3. $5,000/$3,000 = 1.67 years or 20 months

Since Interest Ike plans to live in his house longer than 20 months it makes sense to refinance.

These numbers are not exactly accurate as the loan balance will get paid off over the same time frame, so savings are not consistently $3,000, but it is close enough to make a decision.  Then go talk to a bank and ask them to run the numbers for you and calculate the exact time for repayment of the upfront costs.

To get exact numbers use a free loan calculator.

Scenario 2:  Same values as above $300,000 at 4.75% (but only 28 years left on the loan – original purchase price $310,000) versus new loan of $300,000 at 3.75% over 30 years.

  • Keeping the current loan the total interest paid until paid off = $242,000.  (monthly payment $1,617)
  • Refinancing total interest paid until paid off (assuming not paying any extra each month) =   $200,200.  (monthly payment = $1,390)
  • $5,000 closing costs/$227 monthly saving = 22 months to break even on closing costs

Assuming they continue to pay the same payment each month, total interest paid = $149,000
Total savings = $93,000 (minus $5,000 closing costs) = $88,000 saved. 

*************************************

Scenario 3:  Same values as above $300,000 at 4.75% (but only 20 years left on the loan – note this means initial purchase price of home was $400,000) versus new loan of $300,000 at 3.75% over 30 years.

  • Keeping the current loan the total interest paid until paid off = $176,614.  (monthly payment $2,090)
  • Refinancing total interest paid until paid off (assuming not paying any extra each month) =   $200,165.  (monthly payment = $1,390)
  • $5,000 closing costs/$700 monthly saving = 7 months to break even on closing costs

If you only look at the total interest paid, it doesn’t make sense to refinance.  However, using a free mortgage payment calculator, let’s assume they refinance and continue to pay the same payment each month (basically paying an extra $700 toward the mortgage each month).
Total interest paid = $97,436
$176,414 -$97,436 +$5,000(closing costs) = $84,000 savings

If this is unclear or you’d like me to run numbers for your specific situation, please don’t hesitate to ask!

**This is a sponsored post. 

47 Responses to How to Evaluate if You Should Refinance Your Mortgage

  1. Hi Daria,
    Cool Post, The study of mortgage refinancing isn’t something anyone but a mortgage banker wants to tackle or finds interesting. Most of us simply want the best solution handed to us so that we can get on with the process of arranging and closing the mortgage. FHA Refinance Mortgages can do just that. FHA Refinance Home Loans will hand you a solution that is nearly tailor made to your specific needs for a home loan and will give you exactly what you’re looking for just when you need it most. FHA Refinance Home Loans have been in use for the purpose of securing loans for a long time.
    Cheers

  2. rose hip says:

    If you buy a bottle as is, be sure to choose Extra Virgin Olive Oil.
    Natural rosehip oil can help to treat the dry patches; it can be applied all over your body, including your face.

    It is helpful for dry skin, the way it is for your scalp.
    rose hip recently posted..rose hipMy Profile

  3. Tremendous issues here. I am very happy to peer your post.
    Thanks a lot and I am having a look ahead to touch you.
    Will you kindly drop me a mail?
    http://www.lauriemanny.com recently posted..http://www.lauriemanny.comMy Profile

  4. I’m not that much of a online reader to be honest but your sites really nice, keep it up!
    I’ll go ahead and bookmark your website to come back in the future. Cheers
    ebay misspelled auctions recently posted..ebay misspelled auctionsMy Profile

  5. First off I want to say terrific blog! I had a quick question in which I’d like to ask if you don’t mind.

    I was curious to know how you center yourself and clear your
    mind prior to writing. I’ve had trouble clearing my mind in getting my ideas out there. I do enjoy writing but it just seems like the first 10 to 15 minutes are wasted simply just trying to figure out how to begin. Any recommendations or hints? Kudos!
    buy cheap yacht motors auction online recently posted..buy cheap yacht motors auction onlineMy Profile

  6. I believe that has become the most vital information for me. Exactly what content studying a person’s post. Nevertheless would like to remark with several standard challenges, The web page model is excellent, the content is actually wonderful : Chemical. Fantastic approach, kind regards

  7. Gonzalo says:

    This is a wonderful blog page, many thanks to do this.

    I might in order to bing pertaining to quite a few a lot of time to uncover this particular vicinity.

    I actually dislike if each time I personally google
    and yahoo to get posts that will look at I commonly come across ineffective posts as well as numerous spammy.

    You actually certainly acquire care and attention with every single junk mail
    along with keep your web blog clean up plus premium quality.

    Would you have rules intended for mine website?
    Gonzalo recently posted..GonzaloMy Profile

  8. Lynwood says:

    Sometimes it is an incredible website, thank you in this. I’d so that you can bing designed for several a lot of time to seek out this position.
    I actually dislike if every time I google and yahoo pertaining to articles for you to look at We often find worthless posts plus a great deal of junk.
    A person clearly receive caution regarding all of the spam as well as maintain your web site correct together with premium quality. Don’t you get techniques for my own web site?
    Lynwood recently posted..LynwoodMy Profile

  9. Its like you read my mind! You seem to know so much about this, like
    you wrote the book in it or something. I think that
    you can do with a few pics to drive the message home a little bit, but instead of that, this is wonderful blog.

    A fantastic read. I will definitely be back.
    Provillusx.Com recently posted..Provillusx.ComMy Profile

  10. My partner and I stumbled over here from a different web page and thought
    I may as well check things out. I like what I see so now i’m following you. Look forward to looking into your web page repeatedly.
    Electric Countertop Griddle recently posted..Electric Countertop GriddleMy Profile

  11. hey, i’m so cuffed that i found your cool page I will be marking this!
    - real estate lookup is a passion of mine and and your “How to Evaluate if You Should Refinance Your Mortgage | Saving to be Rich” article is surely great
    work.
    Keep it up! I’ll no doubt be back again real soon!
    realestatebroker recently posted..realestatebrokerMy Profile

  12. I am really loving the theme/design of your site. Do you ever run into any
    web browser compatibility issues? A couple of my
    blog readers have complained about my website not operating
    correctly in Explorer but looks great in Safari. Do you have any
    recommendations to help fix this issue?
    whey protein diet for women recently posted..whey protein diet for womenMy Profile

  13. With the whole thing which seems to be developing inside
    this area, all your points of view are actually rather exciting.
    Nevertheless, I appologize, but I can not give credence to your whole
    plan, all be it refreshing none the less. It would seem
    to everybody that your remarks are not totally validated and in reality you are yourself not wholly certain
    of the argument. In any event I did take pleasure in reading through it.
    Angelica Ritter recently posted..Angelica RitterMy Profile

  14. home loans says:

    This was an effective way of speeding up the processing of loans.

    Set Mortgage Rate: The interest rate here does not change
    throughout the entire period of the mortgage. This activity alone will reduce your credit scores due to an inquiry being done.
    home loans recently posted..home loansMy Profile

  15. Soon says:

    Thank youu for any other fantastic post. Where else could anyone get that kind of information in such an iceal approach of writing?
    I have a presentation subsequent week, andd I’m at the look for such information.
    Soon recently posted..SoonMy Profile

  16. Brisa Beyer says:

    Yet another thing is that when evaluating a good on-line electronics shop,
    look for online stores that are frequently updated, keeping up-to-date with the latest
    products, the perfect deals, plus helpful information on goods and services.
    This will ensure you are handling a shop that really stays
    atop the competition and gives you what you ought to make knowledgeable, well-informed electronics expenditures.
    Thanks for the crucial tips I have learned through the blog.
    Brisa Beyer recently posted..Brisa BeyerMy Profile

  17. web site says:

    Hello, i think that i saw you visited my weblog thus i
    came to “return the favor”.I’m trying to find things to
    enhance my web site!I suppose its ok to use
    some of your ideas!!
    web site recently posted..web siteMy Profile

  18. Thanks for your personal marvelous posting! I really enjoyed reading it, you’re a great author.I will be sure to bookmark your blog and will often come back sometime soon.
    I want to encourage you to ultimately continue your
    great job, have a nice holiday weekend! getting youtube lovers,
    cheap youtube subscribers
    Get More Traffic by increase youtube subscribers for your Profile effective way.
    cheap youtube subscribers recently posted..cheap youtube subscribersMy Profile

  19. bryansam138 says:

    Thank you for having the time to discuss this topic. I truly appreciate it. I’ll stick a link of this entry in my internet site.

  20. I got this web site frߋm mmy pal wwho informed me about this
    ԝebsite and noա this time I aam visiting this web site and reading
    very infrmative аrticles at this time.
    blog.libero.it recently posted..blog.libero.itMy Profile

  21. Buying wholesale jewelry from china will surely give you a lot savings.
    The mouth is moving, but it is like a slow motion
    action movie. s Necklace is a great choice for
    your biker friend.
    Unique Jewelry recently posted..Unique JewelryMy Profile

  22. Hello! Someone in my Myspace group shared this site with us so I
    came to check it out. I’m definitely enjoying the information.
    I’m book-marking and will be tweeting this to my followers!
    Superb blog and fantastic style and design.
    https://twitter.com recently posted..https://twitter.comMy Profile

  23. Kristal says:

    The last armoire in this new collection is a
    mahogany beauty. It could be a birthday, valentine day, Christmas of just a date, gifts can make it
    a memorable day for the men and their beloved ones.
    Keep in mind testimonials is actually a robust method of marketing.
    Kristal recently posted..KristalMy Profile

  24. Latesha says:

    Shorten your amortization period – By shortening your amortization period
    to less than 25 years you can create huge interest savings.
    It is ultimately the purchasers responsibility to ensure that they are purchasing a structurally sound home.

    You can, however, use a VA loan to refinance an existing rental home you once occupied as
    a primary home.
    Latesha recently posted..LateshaMy Profile

  25. To dig into the past and turn the pages of history of Malaysia, the
    various museums of Kuala Lumpur such as Bank Negara Money Museum, Islamic Arts
    Museum, National Archives of Malaysia and National History Museum are worth visiting.
    Perchance these skills tend to be necessary regarding romantic involvement,
    friendship or a job. You can just use the tablet when there is
    no place to set it up as a netbook.
    asus memo pad recently posted..asus memo padMy Profile

  26. This thing fills up hard drives very quickly if you
    are using the PVR features (personal video recorder, AKA, modern day VCR).
    Listed Here Are The Things You Will Require to Make Your Soundbooth : 9  10-foot by 1-inch Schedule 40 PVC plumbing pipe 12  1-inch PVC T couplers 6  1-inch PVC 90-degree elbows 24  1-inch PVC
    pipe caps 4  72-inch by 60-inch mover. If you don’t mind
    purchasing gently used exercise supplies (just make sure to use a small amount
    of disinfectant before use), Craigslist is a local list of items for sale.
    home improvement loans recently posted..home improvement loansMy Profile

  27. Nice post. I learn something new and challenging on websites I stumbleupon on a daily basis.
    It’s always useful to read content from other writers and practice a
    little something from other web sites.
    free book download recently posted..free book downloadMy Profile

  28. I’m not sure where you’re getting your information, but great topic.
    I needs to spend some time learning much more or understanding more.
    Thanks for fantastic information I was looking for this information for my mission.
    Calculus with Applications for the Life Sciences download pdf recently posted..Calculus with Applications for the Life Sciences download pdfMy Profile

  29. Howdy! Would you mind if I share your blog with my myspace group?
    There’s a lot of folks that I think would really enjoy your content.

    Please let me know. Many thanks
    Telegraph Days: A Novel download mobi recently posted..Telegraph Days: A Novel download mobiMy Profile

  30. Verlene says:

    Homeowners seeking to refinance should also be
    aware that there are still appraisal title searches and application fees just like the original financing.
    This can be a major hindrance to your application so it is
    best to wait. Creditors report all late payments to the
    Credit Agencies who keep track of all payments that determines your credit score.
    Verlene recently posted..VerleneMy Profile

  31. So if you’re ready, it’s time to kick it into high gear,
    and get serious about your self-improvement. We are firm ‘knowers’
    of attraction, fans of “The Secret,” and students of awareness.

    Today there are many self-styled gurus of this inner power law
    of attraction to voice their expertise and advice
    for everyone to exploit and develop this innate ability in all human beings.
    ask and it is given recently posted..ask and it is givenMy Profile

  32. Cornell says:

    Are you craving to buy a home and that too with very little cash.
    These money lenders are least bothered about your
    credit or income. They usually buy and sell real estate and pursue to invest
    into other type of projects to enable the capital to continue
    running.
    Cornell recently posted..CornellMy Profile

  33. Edosto says:

    I’m amazed, I have to admit. Seldom do I come across a blog that’s both educative and interesting, and let me
    tell you, you have hit the nail on the head. The
    issue is something not enough men and women are speaking intelligently about.
    I am very happy that I came across this in my hunt for something concerning
    this.
    Edosto recently posted..EdostoMy Profile

  34. Hi there I am so grateful I found your blog, I really found you by accident,
    while I was researching on Google for something else, Nonetheless I
    am here now and would just like to say kudos for a marvelous post and a all round
    interesting blog (I also love the theme/design), I don’t have time to read through it all at the moment but I have book-marked it and also included your RSS feeds, so
    when I have time I will be back to read much more, Please do keep up the superb work.
    http://maritimeconnect.me recently posted..http://maritimeconnect.meMy Profile

  35. @ says:

    Good day very nice blog!! Guy .. Excellent ..
    Amazing .. I will bookmark your web site and take the feeds additionally?
    I’m happy to seek out so many helpful info here within the post, we want work out more
    strategies in this regard, thanks for sharing.

    . . . . .
    @ recently posted..@My Profile

  36. Linda says:

    At first glance it seems home health care to be precise.
    An ambulance was called and she no longer is laughed at.
    While traditional Western medicine principals, there is is word of mouthclaims and false negatives.
    This disorder causes heart failure and still have other risk factors like increased
    risk of deterioration. Once you get to that burn slowly.
    Linda recently posted..LindaMy Profile

  37. Thank you for the good writeup. It actually used to be a leishre
    account it. Look complicated to far delivered agreeable from you!
    By the way, howw could wwe be in contact?
    regim alimentar recently posted..regim alimentarMy Profile

  38. Gino says:

    I’m not sure where you’re getting your information, but good topic.
    I needs to spend some time learning much more or understanding more.
    Thanks for wonderful information I was looking
    for this info for my mission.
    Gino recently posted..GinoMy Profile

  39. Demetrius says:

    Thanks for sharing your ideas. One thing is
    that learners have a choice between federal government Home Mortgage Rates Canada as
    well as a private Home Mortgage Rates Canada where
    it can be easier to go for Home Mortgage Rates Canada
    debt consolidation than with the federal Home Mortgage Rates Canada.

    One important issue is that when you find yourself searching for a Home Mortgage Rates Canada you may find that you will want a cosigner.

    There are many scenarios where this is correct because
    you might find that you do not employ a past Mortgage Rates Canada rating
    so the Mortgage Rates Canada lender will require that you’ve someone cosign the money for you.
    Great post.
    Thank you for this article. I might also like to state that it can often be hard
    if you find yourself in school and starting out to create
    a long history of Mortgage Rates Canada. There are many scholars who are just simply trying to live
    and have long or beneficial Mortgage Rates Canada history is often a difficult point to have.

    I’ve learned several important things by means of your post.
    I’d personally also like to express that there is a
    situation where you will obtain a Mortgage Rates
    Canada and do not need a co-signer such as a Federal government Home Support Mortgage
    Rates Canada. When you are getting that Mortgage Rates Canada through a classic financier then you need to be able to have a co-signer ready to assist you.
    The lenders are going to base that decision over a few variables but the largest will be your Mortgage Rates
    Canada worthiness. There are some Mortgage Rates Canadaors
    that will in addition look at your work history and decide based on this but in many cases it will
    hinge on your report.
    One other issue is that if you are in a predicament where you do not possess a co-signer then you may actually want to try to make use of all of your money for college options.
    You will discover many grants and other free college funding that will present you with money to support with university
    expenses. Many thanks for the post.
    Demetrius recently posted..DemetriusMy Profile

  40. youtube says:

    Hi there to every one, the contents existing at this site are really amazing for people knowledge, well, keep up the
    good work fellows. youtube
    youtube
    youtube recently posted..youtubeMy Profile

  41. Admiring the dedication you put into your website and in depth information you offer.
    It’s great to come across a blog every once in a while that isn’t the same out of date rehashed information. Wonderful read!
    I’ve saved your site and I’m adding your RSS feeds to my Google
    account.
    fransies.mobi recently posted..fransies.mobiMy Profile

  42. pinterest says:

    In fact social networks have revolutionized our lives
    by incorporating all the basic elements of a person’s social life in one place.
    It’s just for craftaholic women and outfit-hungry fashionistas,
    right. It does mean figuring out where your target audience is engaging (social
    networking sites) and developing a strategy for how you’re going to reach them.
    pinterest recently posted..pinterestMy Profile

  43. My partner and I stumbled over here by a different website and thought I might as well check things out.
    I like what I see so now i am following you. Look forward to looking over your web page repeatedly.
    http://www.kijiji.ca/v-view-details.html?adId=1018859939 – wall art recently posted..http://www.kijiji.ca/v-view-details.html?adId=1018859939 – wall artMy Profile

  44. Harley says:

    Heya i’m for the first time here. I came across this board and I find
    It really useful & it helped me out much. I hope to give something back
    and aid others like you aided me.
    Harley recently posted..HarleyMy Profile

  45. twitter says:

    You actually make it seem so easy with your presentation but
    I find this topic to be actually something that I think I would never understand.
    It seems too complicated and very broad for
    me. I am looking forward for your next post, I will try to
    get the hang of it! twitter
    twitter
    twitter
    twitter recently posted..twitterMy Profile

  46. twitter says:

    I rarely leave a response, however i did a
    few searching and wound up here How to Evaluate if You Should Refinance Your
    Mortgage | Saving to be Rich. And I do have a few questions for you if you tend not to mind.
    Could it be only me or does it seem like a few
    of the responses come across like they are
    coming from brain dead visitors? :-P And, if you are posting
    on other online sites, I would like to keep up with
    everything fresh you have to post. Would you list of every
    one of your public pages like your twitter feed, Facebook page or linkedin profile?.
    twitter
    twitter
    twitter recently posted..twitterMy Profile

  47. ufamous says:

    A very to good know informative blog.

Leave a reply

CommentLuv badge