10 Year Plan, refinancing your home mortgage loan can save you a considerable amount of money each month. Currently, it looks as if home mortgage interest rates are going to remain at a moderately low level for the next few months. If you received a mortgage in the past couple of years, and your credit was not great, you may be able to qualify for a lower interest rate if you have been consistenly paying your mortgage and other bills on time. I know that my credit was not the best when I sign my mortgage at the beginning of this year. By the summer, however, I had already noticed that my credit had improved, and I was able to get a relatively new vehicle at a much better rate than I had for my last vehicle.
Refinancing you home seems like a daunting task. There are several ways that refinancing can save you money. First, and foremost, if you get a better interest rate, you can save nearly $100 per month on each $100,000 borrowed with each 1% decrease in your interest rate. This can be substantial if you can lower your rate by a couple percentage points, and especially so, if your mortgage is a over a couple hundred thousand dollars.
I, myself, put 15% down on my property when I purchased it. This allowed me to finance a little over $100,000 for my property. It is about the median home value for my state. I expect that I can refinance my property with a little over a 2% rate decrease. Unfortunately, I would have to pay a penalty if I refinance within the next 14 months (because of stipulations in my original mortgage). This means, you should certainly check into your existing mortgage to see if there are special provisions that would cost you more money. However, even if you have a penalty, it may still be in your best interest to refinance if you A) have an adjustable rate mortgage, as your rate may increase in January, or B) you stand to save a couple hundred dollars per month, as this could offset the penalties and let you lock in a lower rate than you could in another year or two.
Another way that this could save you money, each month, is if you have more equity in your home. By refinancing, you are starting the 30-year cycle over again, but with a lower principal. This does not really save you any money, it just allows you to pay it off over an extended period of time. This could actually be worse than you think, so you could refinance with a shorter term, like 20 or 15 years. Also, if you signed your last mortgage in the past couple of years, you have probably not made much of a dent in your principal, so you would not see a substantial savings from this.
Again, you must weigh your options and see if it is the best thing for you. If you have poor credit when you signed your mortgage, chances are that you will have a better rate along with the ability to receive a fixed rate. This combination could save you several hundred dollars per month, especially if your rate may increase in Janurary.
I have already received two pre-approval letters for over 2% lower. I am also going to check out some other lenders. I can say from my personal experience that LendingTree.com was quite horrible. The caliber of lenders they provide always seem to fall short. I was promised a decent rate, and then all sorts of conditions began to crop up. I ended up bailing out of that situation after I had been working with them for six months. Within a week, I signed with a much better, local lender, and closed on my property.
I will be considering eLoan.com, as they seem reputable. I will follow up with an update, if I follow through with my mortgage.
Other areas to save on your monthly expenses include those that I have outlined in the past in my PMI Options post.
Tips and Hints
- August 2005
- September 2005
- November 2005
- December 2005
- January 2006
- February 2006
- March 2006
- August 2006
- Carnival of Personal Finance #24
- 10 Year Plan
- Making the Leap: Changing Jobs
- PMI Options
- My Ten Dollar Project
- Economics Definition: Thinking at the Margin
- Contribute Early, Contribute Often
- Economics Definition: Factors of Production
- Economics Definition: Opportunity Cost