Is now the time to refinance your home?

Mortgage rates are at a record low, homeowners looking to save money in this economy are asking if now is a good time to refinance. 

But first, let’s talk about what it means to refinance.

“Refinancing is taking the existing mortgage you have on your home and looking to recast or redo the loan itself,“ said banker Drew Miller.

The big question today: is now the right time to refinance?

The rule of thumb used to be was it worth it to refinance if the interest rate on your mortgage dropped a full 2 percentage points, in other words, say from 6 to 4 percent. 

However, Miller of Beneficial Banks says, that’s not the case anymore!

“The world has changed dramatically.  Property values much more expensive, people are taking out larger mortgages because properties are more expensive,“ said Miller.

So no matter what the difference is between your mortgage rate and what the rates have fallen to: the best thing you can do now, Miller says, is sit down and crunch the numbers.
“Know what their current monthly payment is, call a couple different lenders, figure out what their new payment would be, subtract one from the other, what’s your monthly savings, convert that to what it would be on an annual basis,“ said Miller.

So let’s say you took out a 30 year fixed loan for $150,000 with a 7 percent interest rate.  You’re paying $875.00 a month.

Now, if you refinance to a 5.5 percent rate, your monthly payment drops to $687.00…a savings of almost $200.00 a month.

“There could be some significant savings if someone takes the time to do the math,“ miller said.

But remember, refinancing is not the best option for everyone.

Miller says it all depends on your individual circumstances.

“Certainly if your mortgage balance, you’ve paid it down, you’ve been in the house for 20-25 years, it may not be worth it because the bulk of your payment is going to principals,“ Miller said.

But it may be worth it if you have equity in your house, you have great credit, and you plan to stay in your home for a while.