The very common question that I receive in this hoard of refinances right now is, “what amount of rate reductions is it that makes it more likely I can refinance and it make sense?” To really answer that question, and have any hopes of making a relevant fact from it, it has to be answered backwards. So, here is the answer…it’s less likely that you can make a refinance make since when rates are less than .5% lower than where you currently are, but without reviewing a number of variables, it would be financial malpractice to say yes or no without knowing important variables.
1) current loan amount (if you have a 1st and 2nd lien, then we need both loan amounts) 2) current interest rates 3)type of loans you are currently in (FHA, Conv, VA, and was it a Cashout or Home Improvement Loan) 4) what month and year you closed on your current loan/home 5) is your current payment just principle and interest and you pay your own taxes and insurance, or are you escrowing 6) total monthly payment breakdown -principle and interest -monthly taxes -monthly insurance -monthly mortgage insurance 7) what are the chances of you moving in the next 4-5 years or longer
Evidence of Success Mortgage Refinance Transactions:
FHA to FHA streamline refinance w/out an appraisal…if your loan amount isn’t too low, it may be possible for me to offer you a rate that may only be .5% lower than where you currently are, and maybe only save you $100 a month, but I pay all of your closings costs. My past client in this situation received $500 in Mortgage Insurance Refund from previous FHA loan that went toward their new required mortgage insurance, and their new loan only increased by under $2500 because I paid the remainder of their closing costs. At a $100 a month savings, they catch up on that $2500 in 2.08 years.
30 yr fixed conventional refinance to a 15 yr fixed mortgage…15 yr fixed mortgages are always offered with interest rates naturally .5% or so lower than a 30yr interest rate. That being said, if you bought or refinanced your home 2 years ago and had a 6.5% rate, it is very likely that a new 15yr mortgage rate of 3.875% or 4% could offer you a payment nearly unchanged, or only $20-$50 more a month than you are currently paying…guess who did that? ME!!! In the first 5 yrs of the loan, I’ll make up more than $30k in principle than if I stayed in my 30 yr fixed loan where so much of my monthly payment was going toward interest.
Don’t put it off…you’ll appreciate it when you can put more money in your pocket each month or if your goal is to accumulate equity faster, you’ll appreciate it when you go to sell in a couple years and you have extra money to put down so you can be more comfortable with the payment for the next home you really want.