What’s the value of refinancing?

With mortgage loans offered at record-low interest rates, homeowners can refinance for significant savings. What that means, dollar-wise, depends on how you structure your refinancing.

The Web site “Houselogic” looked at refinancing options for the same loan and compared interest cost-savings. Beginning with a 30-year loan made three years ago for $225,000 at a five and a quarter percent interest rate, refinancing at four and a half percent on the remaining balance lowered monthly payments by about $170, and total interest paid by 22 percent.

Refinancing the same loan at four and a half percent but not lowering monthly payments, reduced the total interest paid by 43 percent and shortened the lifespan of the loan.

Refinancing the loan on a 15-year schedule, at 3.6 percent interest, and raising the monthly principal and interest payment by $280, cut the loan length in half and netted a huge 72 percent interest-savings over the original loan.

Yes, there are savings to be had. Refinancing isn’t free, of course, and that cost should be factored into any equation. But spend some time researching and plenty of responsible lenders with reasonable service fees can be found.



Comments

[Sean]

This article talks about something that most people often overlook. There are great excel sheets out there that allow you to compare multiple payment scenarios that allow you to see how your extra payments actually translate into interest savings. There are even some ways to structure the payments so that your monthly obligation actually goes DOWN over the life of the loan even on a fixed rate loan.