When Should You Refinance Your Mortgage?

Interest rates on home loans are extremely low, but does that mean you should refinance? At what point should you do it? It’s not always obvious because getting a new loan isn’t free. There are costs that must be absorbed by the homeowner.

You need to consider the change in interest rates, the length of the loan, and the closing costs. It’s simple math after that.

These are the basic factors to consider:

1. How much have rates dropped vs. your current loan? Keep in mind that if you borrowed $750,000, a one percent decrease in the interest rate is likely to mean more than if you only borrowed $40,000. Look at the change in your payments and calculate how much you will save long-term.

2. How long is the loan term? If you only have five years left on your mortgage, then it won’t matter as much as if you have 27 years left. It’s possible you might lose money in the first case and make out extremely well in the second. Again, look at how much you will save each month vs. the expense of obtaining the new loan.

3. Could you handle a shorter term now? Consider that you might be able to handle a shorter period of time now. If you can reduce your current loan from 23 years to 15 years, there might be a lot of savings there. Even if your monthly payment doesn’t decrease, you could still save a lot by making payments for 8 years less.

4. What are the closing or acquisition costs? The banks charge you to borrow their money, and we’re not talking about just interest. There are fees for credit checks, appraisals, origination fees, and much more in a mortgage refinance. Find out these costs from your lender and include them in your evaluation process.

The key is to compare your current loan and associated payments to the new loan’s payments and the costs to acquire that loan. Remember to include the length of the loan in your calculations.

Some Cautions:

1. Closing costs: Some banks have outrageous closing costs on refinance loans. Be sure to shop around before you borrow the money. Banks can vary dramatically on closing costs.

2. Be cautious about getting a longer term. Some people get excited at the prospect of stretching out the loan to get even lower monthly payments. The equity in your house is going to build much slower. A smaller monthly payment isn’t necessarily a savings if you have to make a lot more of them.

3. Be wary of rolling the closing costs into the loan. This reduces your equity, but it does make it easier to afford the loan. The only problem is now you’re also paying interest on all those costs, too. The bank loves it, which means you should not. You could be paying interest on those closing costs for 30 years!

Now you have some idea on how to evaluate your situation to determine if it would benefit you to refinance your mortgage. Compare the payments and the cost associated with getting the new loan. Look at the possibility of getting a shorter term, too.

Reducing your expenses is a significant part of improving your financial circumstances. Paying less interest for your mortgage loan could save you many thousands of dollars. The only way you can tell is to do the comparison. So pull out your calculator and run those numbers. You might be very pleasantly surprised!

Paying Off Your Mortgage Early Can Be Your Ticket to Financial Freedom

A mortgage is a guaranteed monthly expense. Well, at least for now it is. However, you don’t have to wait 30 years, or even 15 years, to be mortgage free. If you’re willing to put 100% effort into paying off your mortgage early, you can be mortgage-free in less than 10 years.

Below, we’ll discuss both the benefits and possible detriments of paying your mortgage off early.

Benefits of Paying Early For Mortgage

If you’re like most American families, your mortgage is your costliest monthly expense. But, what would you do if you didn’t have to make a mortgage payment each month? How many doors would suddenly open to you?

In essence, being mortgage-free provides you with financial freedom. You can continue to earn your yearly household income, without having to fork over $10,000 to $25,000 of it for a mortgage payment.

Here are just a few of the financial benefits that you’ll be able to enjoy without a mortgage:

* Pay off all of your debt in order to truly live debt-free
* Purchase a brand new car with cash
* Become a landlord; invest in the real estate rental market in order to earn passive income
* Purchase a vacation home for your family
* Take exotic vacations
* Purchase a boat for leisure
* Fully invest in your 401k
* Save 100% cash for your children’s college tuition
* Renovate your home without the need to incur more debt
* Build a fully stocked emergency fund

These possibilities are just the tip of the iceberg! For example, if you’re able to get rid of an $1,800 mortgage payment, that’s over $21,000 per year that you can save or spend in any which way you please. By saving up just 5 mortgage payments, you can pay for a $9,000 car outright. Or this can also be used as startup for a small business you can start on the side of your 9-to-5 job.

Common Arguments

Not everyone believes that paying off your mortgage early is a smart idea. And truthfully, for some people, paying off a mortgage early isn’t the best option. This includes those with astronomically low interest rates and those with an already tight budget.

Here are some of the most common arguments for opting to keep your mortgage payment:

1. Tax credits. When you hold a mortgage, you’re able to use the amount you pay in interest as a tax deduction. However, deducting $15,000 would save a mere $3,750 in taxes.

* Would you rather have $15,000 in the bank (plus the payment that is applied to your principal) or save $3,750 on taxes? $15,000 could buy you a new car, while $3,750 might only pay for your family vacation.

2. Diversification. Some people believe that diversifying your investments is the most secure route to ensuring the highest return. If you spend all of your extra money each month to pay off your mortgage payment early, you won’t be able to partake in other investments or build a hefty nest egg in case of a rainy day.

* A good rule of successful investing is certainly diversification, as it minimizes risk.

When it comes down to it, eliminating your mortgage payment provides you with the security of knowing that you’ll always have a roof over your head, whether you lose your job or not. Plus, you also gain financial freedom – and wealth – by being able to invest in opportunities which otherwise wouldn’t have been available to you when paying a mortgage payment.

Paying off your mortgage early will take hard work and dedication. And for several years, you’ll need to pour a great portion of your available cash into increasing the power of your payments. But the sooner you pay off the mortgage, the sooner you can have the life you’ve always dreamed of.