Mortgage are a special occasion these days as home finance loan companies depend on refinancing—currently 80 percent of the market—to survive. Homeowners looking at such low interest rates want to refinance in hopes of either improving money flow with lower payments or saving money over time with shorter or longer terms. A series of factors converge to influence a decision. Things like interest rates and taxes will determine if refinancing can make a good difference. Plus, deciding whether or not to refinance with a 15-or 30-year mortgage has major long-term financial implications.
Mortgage lenders depending on refinancing
By refinancing a mortgage, a homeowner can conserve thousands of dollars in home loan payments each year. SmartMoney reports that homeowners are refinancing mortgages in record numbers. The Mortgage Bankers Association tracks the trend. An MBA report said that of all mortgage activity, 80.5 percent was refinancing. MBA records on refinancing activity from 1990 to 2008 average nearly half that percentage of home loan lending. The average rate for a 30-year fixed mortgage was 4.51 percent for the week ended Sept. 10. At the very same time, a 15-year fixed home loan averaged 4.02 percent. Last September the fixed rates were much higher. A 30-year term came in at 5.54 percent and 4.97 percent for 15-years.
The objectives of refinancing a mortgage
Saving money with lower monthly payments is attractive, however not every homeowner should refinance a mortgage. The New York Times reports that it all boils down to whether or not you are able to really save money over the duration of the loan. Key numbers in the equation that need to be nailed down are closing costs and monthly savings. Factoring the monthly payment savings into the total closing costs shows how long it takes to start coming out ahead. For making refinancing worthwhile, homeowners need to remain living within the house long enough for refinancing to pay off. Taxes—always a pain—can take some sweetness out of the deal. The amount paid on mortgage interest subtracts from taxes owed, when most closing costs don’t. Another thing: interest costs go way up with a 30-year home loan, even though money flow is better after refinancing.
A case for an extended term, with a twist
Refinancing with a 15-year loan substantially reduces interest costs. But the higher payments can give refinancers second thoughts, states Kathy M. Kristof of the Los Angeles Times. Homeowners who aren’t’ fazed by a higher monthly payment might do well to think about putting the money somewhere else. To illustrate, Kristof describes a situation with a $300,000 mortgage. A homeowner pays a total of $399,420 at the end of a 15-year term. Over 30 years that loan will cost $547,223. But the 30-year mortgage can offer an advantage. The monthly payment is $700 lower. All that monthly savings, pumped into a diverse collection of stocks—with a documented average return going back 83 years of 9.6 percent, would yield $279,305 within 15 years. That’s enough money to settle the entire mortgage–$198,701—and have an $80,000 profit. The projected return is in no way guaranteed. However chances are the method would net more within the long term than simply r! efinancing with the shorter term.
SmartMoney
smartmoney.com
New York Times
newyourktimes.com
Los Angeles Times
latimes.com
No comments:
Post a Comment