Good Time to Consider Refinancing Your Home - KCBD NewsChannel 11 Lubbock

1/13/09

Good Time to Consider Refinancing Your Home

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With interest rates dropping 1.5% recently, some housing experts are crossing their fingers these low rates will help lift up the housing market.  But current homeowners are taking advantage of the rates and saving money in the long run.

Kelley Elliott and her husband are in the process of refinancing their home they've lived in for 10 years in Lubbock. "Our current rate is 6.5% and with the rates falling like they are currently we decided that it was going to be a good deal to refinance," said Elliot.   

Greg Luman with Hometrust Mortgage says current interest rates are the lowest they've been in decades. He says the average rate across the US is 5%, when just six months ago the average was 6.5%. "I'm advising people if they can trim a percentage point or more off of their current interest rate, it's probably advisable to go ahead and look at refinance," said Luman.   

This calculation puts it in perspective. "If a borrower had 6.5% on a $100,000 loan and they could get 5% today, they are looking at savings of about $100 a month on that same loan," said Luman.   

Cindi Lea with First Mortgage Texas agrees she says in the last week her phone has not stopped ringing with customers wanting to refinance. "I've had several refinances that we've done where they are going from 30 year to a 20 year and when you calculate it, it was like a $96,000 savings and that was saving 1.5%," said Lea. 

But is refinancing a good option for everyone?  "If something happens and you sell in the first 12 months after you refinance, you owe more than you did 12 months ago," said Lea. 

Lea says if you are planning on moving in the next two years than refinancing is not the answer.   Two other things to keep in mind are how much you owe vs how much the property is worth and your credit score. "So we do try to make sure we are going to address it from every angle. There are a lot of people out there, this is helping them," said Lea.   

And making the decision to refinance is going to pay off in the end for the Elliots. "We not only reduced the term of our note by five years, but we will keep our payment a little bit lower if not the same, so it's a good deal," said Elliot. 

If you are considering refinancing your home, the experts encourage people to do their homework.   Also keep in mind loan officers say it's a great time to buy a home.

Refinancing Examples:

A)  $100,000 Mortgage Loan (Note) at 6.50% for 30 years:  payment = $632.07      Total paid over 30 years (360 months) = $227,545  (Interest paid = $127,545)
 
B)  $100,000 Mortgage Loan (Note) at 5.00% for 30 years:  payment = $536.82      Total paid over 30 years (360 months) = $193,256  (Interest paid = $93,256)
 
C)  Now, assuming you paid $632.07 per month on a loan at 5.00% instead of the $536.82 required, you would pay the loan off in 21.5 years instead of 30 years.
 
Total payments under this scenario ($632.07 for 21.5 years or 259 months) = $163,706 (Interest paid = $63,706)
 
Option C vs Option A:  you would save almost $64,000 of interest expense.  Keep in mind this is taking advantage of a rate reduction of 1.50% and keeping the payment at the payment required with the higher interest rate ($632.07).  The point here is that adding even $100 per month to your payment can significantly the total payments and also significantly reduce the time to pay off the mortgage loan.
 
Option C vs Option B:  you would save almost $30,000 of interest by refinancing a $100,000 loan today down to an interest rate of 5.00% and making approximately $100 per month additional payment.  This is the savings that could be realized even after lowering your interest rate by paying a little extra each month.

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