When it comes to ongoing monthly expenses your mortgage is most certainly the largest expense. Even if you split payments over 30 or 50 years, this amount can be well over $1,000. To make matters worse, unless you are well aware of current market rates for mortgages, you may be paying hundreds more per month than you need to.
This is why it’s important to monitor interest rates as well as promotional offers for mortgages to ensure that you are getting the best deal and not wasting any money on interest. Fortunately, mortgages are pretty standardized and you can follow this easy guide to know when and how to refinance your mortgage.
A Rule of Thumb
The simplest rule of thumb regarding a mortgage is that if you can lower your interest rate by 1% or more, it is almost always an excellent idea to refinance your mortgage. And almost every circumstance you will come out ahead in the long term, even after paying closing costs.If you can reduce your mortgage interest rate by 1%, this means that you save $1,000 for every $100,000 that you owe on your house each and every year. The closing cost hovering around $2,000, this means that if you owe $100,000, your break-even point is 2 years. If you plan on staying in this house for at least 2 years you will break even and begin the profit shortly thereafter.
More Precise Approach
If you don’t qualify based on the rule of thumb alone there’s still a chance to save money with a mortgage refinance. Circumstances are always a little different from time to time, but the formula used to figure this out is relatively simple. We need to figure out just how much you can expect a safe and just how much you can expect to spend on the refinance in terms of closing costs. Just like in the rule of thumb example above, it isn’t necessarily difficult to calculate the possible savings.You can still take whatever percent savings you can get for your mortgage and then multiply that value for every $100,000 do you still owe on a house. You didn’t take that value and multiply by the number of years that you plan to stay in the house.
Finding Exact Values and Best Rates
If you have access to the internet at the time, it’s highly recommended that you use a mortgage refinance calculator to determine exactly how much you can expect to save. This calculator will give you perfect information about what you can expect to save on your as well as refinance mortgage rates available in your area. Find the best rates. Once you have figured out that a refinance mortgage is right for you it is important to make sure you find the absolute best rates available. Many people see that they can save a few hundred dollars a month and pull the trigger right away when they can save even more with a little bit more research. This is a decision that could stick with you for decades so it’s important to take it seriously.
Search for Extra Benefits
One thing that many people overlook when maximizing the value from their mortgage is the potential for cash back and other bonuses. For example, Chase is currently offering 100,000 total reward points for those who open a new mortgage with them.It’s important to make sure that the closing costs do not render this benefit useless, but the potential for additional gain is there for certain customers. All in all, the choice to refinance a mortgage can be decided on mathematically. There is very little risk in terms of refinancing if you know you were going to be in your house for a certain number of years, meaning it is just a matter of doing the math and determining if it’s right for you. Follow this easy guide and you can potentially save thousands of dollars per year.