Should I Refinance?

For most, the current economy has brought on the need for severe money saving strategies.  From extreme couponing to extreme budgeting to extreme cut backs; everyone is looking for ways to save money.  Interestingly, mortgage borrowers have seen historic low interest rates for the past two years.  The Denver Post recently reported that interest rates on a 30-year mortgage hit 3.94%, the lowest ever in history.

A Glance at Historical Interest Rates shows a graph of the average interest rate since 1971.

What does this mean for current homeowners?  Refinancing your current loan could be a place to look on ways to save money each month.

Does it make sense for me to refinance?  Consider this:

  • Lowering your rate by 1% or more is a good benchmark of savings.  For borrowers with a loan amount of $400,000 or higher, even .05% or more could equal significant savings per month.
  • On a $200K loan amount, if your initial interest rate is at 5.5% and you can refinancing into a 4.5% rate, that is an approximate $120 savings per month.  Within 5 years your savings would equal approximately $7,200.  Your savings at the end of the loan (30 years) would be around $43,000!!  Typical closing costs on a refinance at this loan amount range from around $2200 to $2500.  In this scenario you would recoup those costs in less than 2 years.
  • If someone is currently 7 years into a 30 year mortgage, it is possible to refinance them into a 23 year mortgage or a 20 year mortgage at a better rate.  Most lenders can amortize over any amount of time for their customers.  Each payment made with this option would put more principal toward their home and hopefully increase their equity position.

What Should I Do If I Want to Refinance?

  1. Determine the time frame you will continue to own the home.  It does cost money to refinance so you want to make sure that you will own the home long enough to recoup those costs (if you will be selling in less than 2 years, it might not make sense to refinance).
  2. Talk to a lender.  A lender should be able to sit down with you and discuss if a refinance is right for your situation.  This would include giving you a quote on interest rates and an estimated savings per month based on that rate.
  3. Talk to a REALTOR.  Your REALTOR can help you determine if recent sales in your area will support the amount you are trying to refinance (most refinance options are conditional on an appraisal of the home).  If you do move forward with refinancing your home, the documentation provided by your Realtor can be provided to an appraiser.

Resources for Metro Denver Homeowners:

  • Tonnie Gillen (303-996-8821 direct or via email with Pinnacle Mortgage Group is a local lender that I have worked with over the past several years and highly recommend.  She has a proven track record with me of great service and highly competitive rates.
  • If you would like a complimentary CMA (Comparable Market Analysis) of your home, please contact me.  Your report will include Metro Denver market stats and your neighborhood market summary including: current homes for sale, homes that are under contract, and recent sales similar to your home.

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