Home loan financial institutions aren’t financing house sales, but they are refinancing mortgages to the tune of 80 percent of their business. Rate of interest reductions spur refinancing for homeowners looking for a chance to conserve money on their mortgages through lower payments or shorter terms. Different scenarios have to be considered before a homeowner knows if they will really reap the benefits of mortgage refinancing. There are also interesting differences in the outcome of refinancing via a 15-year or 30-year mortgage. Article source – Mortgage refinancing – several solutions to benefit from low rates by Personal Money Store.
Home finance loan companies depending on refinancing
By refinancing a mortgage, a homeowner can conserve thousands of dollars in home finance loan payments each year. SmartMoney reports that homeowners are refinancing mortgages in record numbers. According to the Mortgage Bankers Association, refinancing accounted for 80.5 percent of total mortgage lending. MBA records on refinancing activity from 1990 to 2008 average nearly half that percentage of home finance loan lending. A 30-year mortgage averaged a fixed rate of 4.51 percent on Sept. 10. At the exact same time, a 15-year fixed home loan averaged 4.02 percent. A year ago, those rates averaged 5.54 percent and 4.97 percent, respectively.
Deciding to refinance a mortgage
At first glance the savings realized from lower payments seems to be a no-brainer. However, refinancing a home loan doesn’t always work as advertised. Saving a worthwhile sum over the life of the home loan should be the primary goal of refinancing. Key numbers within the equation that need to be nailed down are closing costs and monthly savings. The time span for breaking even is determined by dividing closing costs by the amount saved on payments per month. If a homeowners stays put that long, a refinance could work. Taxes—always a pain—can take some sweetness out of the deal. Most mortgage interest is tax deductible; a lot of closing costs aren’t. At the very same time, upping cash flow by refinancing with a 30-year home loan results in more long term interest paid.
A 30-year mortgage with a 15-year payoff
Many homeowners are refinancing with 15-year mortgages. Lower total interest costs are the primary reason. However the higher payments can give refinancers second thoughts, claims Kathy M. Kristof of the Los Angeles Times. Homeowners who aren’t’ fazed by a higher monthly payment might do well to consider putting the cash someplace else. Kristof uses a $300,000 loan as an example. A 15-year mortgage has a total cost of $399,420. Over 30 years that loan will cost $547,223. However, the 30-year mortgage has a monthly payment $700 less. If that money were invested in a diversified portfolio of stocks that has averaged a 9.6 percent return over the last 83 years, it would be worth $279,305 after 15 years. Halfway to the 30-year loan, the proceeds could retire the $198,701 balance. That would leave $80,000 to play with. The projected return is in no way guaranteed. However chances are the strategy would net more in the long term than simply refinancing with the shorter term.
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SmartMoney
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New York Times
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Los Angeles Times
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