Should You Refinance Your Mortgage?

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By: Christel Silver Special to the Boca and Delray newspapers

Refinancing means replacing your current mortgage at the current interest rate with a new mortgage at a lower interest rate. Taking advantage of a lower interest rate will reduce your monthly payment.  In short, swapping out the old for a better new loan. But wait – you need to get all the facts first to make a smart decision.

Nothing is free, so there is a cost for refinancing and it can take a couple of months before you have paid off the cost with the savings. Here are some costs to consider:

* The bank will charge a fee for processing the refinance and credit report.

* You have to get a new title insurance, and if you have followed my articles, I mentioned that you can save money at time of refinancing if you have a title insurance in place.

* The attorney for the bank or a title company also charges a fee for the closing.

* There are also some costs that are partially refunded, like insurance and taxes.

* And you need a new appraisal.

A total estimate of $4,000-$5,000

The first question you have to ask yourself is, “How long will I stay in the house?” If the answer is less than two years, then refinancing is not a benefit.

If you have been able to increase your credit score substantially since applying for the original mortgage, you will have the benefit of getting an even better interest rate, and it can lower your monthly payment even more.

If the value of your house has gone up and you need to pay off some high interest credit cards – you can get a “cash out” refinance.  The new loan will be higher than the old loan and you will get cash to pay off higher interest debt.

There are occasionally programs when a bank offers you a refinance of your remaining loan without closing cost. This is the best opportunity to save money – go for it. The government also offered a HARP program, which helps you lower your interested rate without cost.  The end date to get a HARP refinance is Sept. 30. If you need more information go to www.harp.gov. The loan limit is $300,000 and if you qualify, go for it.

If you have an adjustable mortgage, (which means the interest rate will change periodically) and you can refinance into a fixed rate mortgage (which means the interest stays the same for the rest of the term), this is a good reason to refinance and an advantage most of the time. Also if you have an FHA loan, which requires a mortgage insurance for the life of the loan – you are not only getting the lower interest rate but also get rid of the insurance premium each month.

Let’s assume you got a mortgage 15 years ago for $200,000 with 6 percent interest and you are thinking of refinancing:

Your principle and interest payments would be $1,199 per month and the loan would be paid off in 2032.

You decide to refinance the remaining $150,000 with a 4 percent interest loan without mortgage insurance.  The new principle interest would be $716 – but your loan would not be paid off until 2047.

The difference of $483 every month has to pay off the cost of refinancing first being $4,000-$5,000 – so after the first year you would save this amount every month – but you are paying the loan off 15 years later.  That translates that you would pay $215,830 during the next 15 years for the original loan and $257,760 for the refinanced loan over the next 30 years. But if you are considering selling the property in five- six years, refinancing is the answer.

If you want the refinance for a 15-year loan to keep the payoff in 2032, your monthly payments would be $1,109 – the $90 saving would take you four years to recover the closing expenses and the monthly savings are minimal.

So once you have educated yourself about your options, talk to a lender and CPA to verify that you are making a good financial decision.

About Christel Silver

Christel Silver is a full time Broker/Owner of Silver International Realty servicing the East Coast of South Florida. In 1985 she was licensed in Maryland and Washington DC as a Realtor and later as a Certified Residential Appraiser and Associate Broker and has been in Florida since 2001. The National Association of Realtor’s (NAR) President appointed her (2010-2014) as the President’s Liaison to Germany, where she grew up and worked at the Justice Department for 17 years prior to coming to this country. The Germany Real Estate Organization (IVD) has an agreement with the NAR and she is an International member of this organization. Christel is a Certified International Property Specialist (CIPS), and a certified speaker teaching CIPS classes. Ms. Silver served the Florida Certified Residential Specialist (CRS) Chapter as President, as Regional Vice President helping Chapters to grow, and as a member of the Board of Directors for two years. She is currently an ambassador.  Fifty percent of her business is in the International arena. For more information visit www.silverhouses.com.