Refinancing options could save big money over the loan’s term
It seems as if we are in the midst of the second coming of decreased mortgage interest rates. Interest rates reached what we all thought were unprecedented lows throughout 2009 and the first four months of 2010. Rates on 30-year fixed rate mortgages dropped to the mid-4 percent range during this time period. As has been well documented, the Fed’s purchasing of $1.25 trillion of mortgage-backed securities was the reason for rates being so low. Turmoil within many foreign economies has now caused global investors to seek the safe haven of U.S. bonds as their primary investment vehicles. Such a flood of investments in U.S. mortgage-backed securities has caused interest rates to drop below the unprecedented levels of 2009 and the beginning of 2010. However, the drop has left many borrowers wondering if there is an option or reason for them to take advantage of the recent decreases in rates. There are many variables that must be evaluated on a case-by-case scenario when trying to determine if a borrower should refinance his mortgage twice within a short time frame. A transaction or refinance from a 30-year fixed rate mortgage to a 20-year fixed rate mortgage has been the answer for numerous borrowers recently. Many borrowers who refinanced their mortgages during 2009 and early 2010 secured a rate of around 4.875 percent on 30-year fixed rate loans. Assuming a loan amount of $400,000, the monthly mortgage payment is $2116.83. Interest paid over the 30-year term at the given rate is $362,061. Current interest rates for a 20-year fixed-rate mortgage are at about 4 percent. Assuming a loan amount of $400,000, the monthly payment for the 20-year fixed-rate mortgage at 4 percent would actually increase by about $300 to $2423 per month. However, the interest paid over the term of the loan would decrease by $180,320. Clearly a monthly payment increase of $300 per month is not to be taken lightly, but neither is $180,000 of saved interest over the life of the loan. Refinancing into a 20-year fixed is just one of the many angles and options that exist today. If that scenario does not work for you, perhaps there is another one that has not yet been considered.Now more than ever, mortgage financing is a science, not an art. There are many variables at play influencing the rate and term of loans. There are many variables at play past the rate and term that factor into whether or not the deal can be completed at all. If you haven’t evaluated your current mortgage financing scenario since your last refinance, now is the time to do so with the guidance of a seasoned professional. William A. DesPortes is a managing member of DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 926-9393 or email@example.com.