I have a project this summer that I’m excited about- it combines personal finances with helping someone out. I had a great conversation with a dear friend about mortgages and refinances and they asked if I would assist them. They never done one before and they’d like to take advantage of lower rates as it can decrease their payments so they can redirect their money towards other goals, including retirement.
I get to track their progress and the process as long as I keep their personal information anonymous. I think it’s a great idea as many people are in a similar boat and are looking at refinancing their homes.
Everyone has their own reasons to refinance and many instances it’s a combination of a few. Some popular ones include:
- Lower Interest Rates: Having lower interest rates means that homeowners can save tens of thousands of dollars or more over the life of their mortgage.
- Lower Monthly Payment: For those on a tight budget, they may be looking to give themselves a bit more breathing room by refinances. Please keep in mind that there are closing costs to consider (though it’s possible with some lenders to roll them into the new loan). For those with 20% or more equity, you may want to refinance to not only save money on interest, but to also get the PMI remove. You don’t have to refinance to get the PMI removed though.
- Pay off the mortgage sooner: Cutting down on the length of the mortgage can also save you a ton of money. The trade off is that you may have to pay just a bit more each month.
For my buddy their reason to refinance as I mention before has to do with cash flow. Thankfully when they bought their house years ago, they made a good down payment and have been putting extra on it as much as they could over the years. That means even with this economy they have some equity in their home. That also means they don’t feel like they have to rush their the refinance process.
For those curious about the starting point, here are the numbers. The balance and the appraisals have been rounded a bit, but it gives you a ballpark figure for later estimates.
- Total Loan Balance: $65,000
- Interest Rate: 6.00%
- Loan Term: 30 years, fixed rate
- Appraised Value: $115,00
Thoughts on Refinancing
I’m curious – how many of you are think about refinancing in the near future? Photo Credit