When interest rates drop to lower percentages, it might be tempting to consider refinancing to save money, but how will you know this is something you should do? That’s where calculating your break-even point comes in. Here’s how to calculate it and see if refinancing is something you should do:

What’s the balance of your mortgage?

This is the biggest thing to consider when it comes to refinancing. If you have the intention of taking out more money to pay off your home, or do any additional big projects, like home improvement, make sure to add this to your total.

What are the rates?

If you’re unsure or don’t remember, find out what your current interest rate is and compare it to the potential rates you can get with a new loan.

What’s the difference?

Calculate the difference between your current monthly payment and what you would pay with a new loan and interest rate. Using a mortgage calculator, like this one, can give you a better idea of how much you’d save with a refinanced loan.

What are the estimated closing costs?

Getting a good-faith estimate from your lender will help you calculate what your closing costs will be. Closing costs are typically what your lender will charge you to process your new loan, along with other fees that are factored into your total.

Have you calculated prepayment penalties?

Some loans may penalize you for paying them off too quickly. Find out if your loan has any prepayment penalties and make sure to factor that into to your closing costs. The good news is, this is uncommon and likely won’t be the case for many.

Have you crunched numbers?

After all your information and numbers are compiled, multiply your monthly savings by 12 and you will get annual savings. Then, divide your closing costs by your annual savings number and this will be your break-even point. Easy as that!

               Now you’re ready to decide!

If you plan to own your home after your break-even point, it might be a good time to refinance!

Have questions on how to begin the refinancing process? Contact the Housing Buzz team today and get started!





Source: http://mortgagesolutions.net/2013/03/26/calculating-the-break-even-point-for-refinancing/