To Refinance or Not to Refinance?

It is not unusual for a mortgage to become burdensome as years go by and financial situations or life situations change. Sometimes, it would be in the best interest of the homeowners to renew the finance plan and change it in ways that would make payment and loan payoff easier and more convenient. What may have once been a good payment plan may no longer be the ideal. Do not feel like you are the only one with this problem. For, unfortunately, this is a typical situation.

Before you decide to refinance your home, you should understand exactly what refinancing is and how it will alter your payments, interest and the time it will take to pay off your loan. Chase Manhattan Mortgage loan professionals assist homeowners with this inquiry every day. They are experts on home finance and can give you a personal consultation and assessment, helping you gain a solid understanding of your finances and how to manage them.

The biggest question is usually: should I refinance or not? This depends on specific information in relation to the value of your home: the amount, duration and payment plan of your initial mortgage, the same information about your new loan, your interest, taxes, and any other factors of this sort.

You will not know for sure how much refinancing would save you, if any, without talking to a loan professional at Chase. However, you can get somewhat of an idea from peeking at some common equations and results.

Let’s say your original loan amount is $100,000 and it is for a term of 30 years. You have already paid seven years, and have a current loan balance of $90,000. Your interest rate for this loan is eight percent. Your new loan is for 30 years as well, with one percent discount points, no money to start, $1,000 extraneous costs and a seven percent interest rate. Your property has an appraised value of $125,000 with an annual property tax of $2,000. Your homeowners’ insurance is $600.

You pay around 28 percent state and federal tax. If all of these values were similar to your own, then you would hypothetically save $4,572 over seven years before you sell. Your total monthly payment with the first loan was $950 and your total monthly payment with the new loan is $815.

As you can see, with these numbers, you would save a pretty significant amount by refinancing. This is not always the case, though. Make sure you receive professional advice from a loan professional at Chase.

You may also be thinking about extra payments. Would they be beneficial? Would they save me money? Well, there are also some common values and results for this. The same as above, your loan amount is $100,000 and the appraised value of your home is $125,000. It is for a 30 year term and you pay $2,000 in property taxes.

You pay $600 a year in homeowners’ insurance and pay seven percent interest rate. You also pay an additional payment of $300 a month and you have one month until you start the extra payments. For this data, your principal and interest would be $665 without extra payments and $965 with extra payments. Taxes and insurance without extra payments would be the same with extra payments, $217 for either.

There is no mortgage insurance. Your total monthly payment without extra payments would be $882 and with the payments $1,182. Without the extra payments it will take 360 months to pay off the loan, but only 161 months with the extra payments. The total interest paid without is $139,509 and with the extra payments is $54,322. As you can see, this will pay off your loan much faster and will drastically reduce the interest you pay, but it will also make your payments much higher.

Go over these examples and compare them to your own finances and loans. If you think that you would come out with similar results, it is probably to your advantage to go ahead and refinance or start extra payments. If not, you may want to reconsider.