Mortgage rates have been dropping over the last few years and refinance rates are at all time low. You may be wondering if refinancing is worth the effort.
Refinancing can help you save in two different ways: You can lower your monthly mortgage payment, or you can lower the amount you end up paying in interest to the bank. And while refinancing your home is not always a financially beneficial move, today’s low refinance rates make looking into it worth the effort.
Refinancing with Mortgage Interest Rates Today
Mortgage interest rates have been steadily falling for the last few years, so taking the time to figure out how much you will be able to save on your mortgage payment by refinancing is a smart idea. The easiest way to do this is with a mortgage calculator .
Enter the amount you have left on the loan (remaining principal), the new interest rate and the payment term to find out what your new payments would be, prior to factoring in home closing costs and other fees. Keep in mind that the shorter the term, the less you will pay in interest over the life of the loan, even though payments are larger. On the other hand, the longer the term, the smaller your monthly payment will be — but you’ll end up paying thousands more
in interest over the life of the loan.
How Much Will I Save if I Refinance?
The amount you will save on the loan really depends on your current situation. For example, if you have twenty years left on your mortgage of $145,000, and you currently have an interest rate of 6%, you are likely paying about $1,039 a month. If you refinance to the current rate of about 3.5%, you will now have a payment of $841.
If you change the term to fifteen years instead of twenty, your payment will be about the same, but you will pay off the loan five years earlier, plus pay less in interest overall.
Is It Worth It to Refinance My Mortgage?
Once you have looked at the numbers, you may be wondering: “Is it worth it to refinance my mortgage? ” This depends on how much money you will really save.
If you are not going to be in the house for much longer or you have nearly paid off your mortgage, it may not be worth refinancing due to the fees associated with obtaining a new loan. Be sure that after you have calculated the savings associated with a shorter term or lower interest rate, you then add in projected closing costs to find out if you are truly saving money on the deal.