24 May Is It Really A Good Time to Refinance?
Or stated another way; “Does a rate reduction help your finances?” Not all refinances are a good idea. Evena refinance solely to reduce your interest rate can be a losing proposition. You have to consider how long it will take to recover the cost of a refinance. A small sacrifice now can mean big money later.
Generally, it is not a smart to draw cash out of your home to pay bills. See “A House is Not a Piggy Bank” on the Bankruptcy Law Network. In these days of falling values, we probably won’t have to worry about that for a while. Even if you are not drawing cash out of your home, you can still make mistakes that will affect your finances for a
As with every important financial decision, you must do the math. An average refinance closing for a $200,000.00 loan costs about $3,000.00, not including locally specific items such as taxes, transfer fees, certain kinds of insurance or homeowners association fees. Even if your loan payment is reduced by $125.00 a month, you will have to make payments for two years before you will start to realize realize any real savings.
Consider instead, using a refinance to shorten the term of your loan. A $200.000 loan at 7% reduced to a 4% rate, but also reduced in term from 30 years to 15 years will increase the payment about $148.00 a month. However, that increase will cut the loan term in half and save you over $212,000.00 in payments!!