Home finance loan are a special occasion these days as mortgage financial institutions depend on refinancing—currently 80 percent of the market—to survive. Record low mortgage rates have existing homeowners thinking about refinancing to lower their monthly payments or shorten the term of the home finance loan. Mortgage refinancing includes factors such as rates of interest and taxes that determine whether or not it’s a good idea. Homeowners must also be aware of the long-term effects resulting from the decision between refinancing with a 15-year or 30-year home finance loan.
Mortgage sector stays profitable with refinancing
By refinancing a mortgage, a homeowner can conserve thousands of dollars in mortgage payments each year. As reported by SmartMoney, more homeowners than ever are attempting to refinance their mortgages. According to the Mortgage Bankers Association, refinancing accounted for 80.5 percent of total mortgage lending. That rate virtually doubles the amount of activity the MBA recorded within the previous 18 years. Low personal property rates are fueling the trend. The average rate for a 15-year mortgage was 4.02 percent. During the very same period last year average rates for 30-year fixed and 15-year fixed mortgages were 5.54 and 4.97 percent.
When refinancing mortgage makes sense
At first glance the savings realized from lower payments appears to be a no-brainer. However, refinancing a mortgage doesn’t always work as advertised. Refinancing only makes sense if a net gain in savings in realized when the home loan is paid off. Homeowners have to determine their closing costs and monthly savings. Divide closing costs by savings; that shows how numerous months it takes to break even. For making refinancing worthwhile, homeowners need to remain living within the house long enough for refinancing to pay off. Sometimes taxes can fool uninformed refinancers. The amount paid on home finance loan interest subtracts from taxes owed, when most closing costs don’t. At the exact same time, upping money flow by refinancing with a 30-year home loan results in more long term interest paid.
A fascinating refinancing approach
Many homeowners are refinancing with 15-year mortgages. Lower total interest costs are the primary reason. However, Kathy M. Kristof at the Los Angeles Times writes that a shorter-term loan means a higher monthly payment. Even for homeowners who can afford a higher monthly payment, there may be smarter ways for them to invest their cash. Kristof explains the possibilities using a $300,000 loan. A 15-year mortgage has a total cost of $399,420. A 30-year mortgage: $547,223. However, the 30-year mortgage has a monthly payment $700 less. 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. Halfway into the 30-year loan, the proceeds could retire the $198,701 balance. That would leave $80,000 to play with. Of course, investing within the stock market would be risky, however in this case, it would bring a greater reward than refinancing a 15-year home fin! ance loan.
Additional reading
SmartMoney
smartmoney.com
New York Times
newyourktimes.com
Los Angeles Times
latimes.com
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