We all want to save money, which is the easy way to make money, right? And refinancing your home can be a way to save a significant amount of money on monthly payments or over the long haul, especially if you refinance when interest rates are low.
But a lot of people give up on refinancing before they even get started. Don’t be one of them. Refinancing could be costing you a lot of money in California. But, don’t believe these…
3 Common Refinancing Tales
Tale 1 – You’ve Missed the Boat
Not long ago low-interest rates were common, but now that the Fed is raising rates again, it’s just too late. It’s just too late for you to refinance because the rising interest rates won’t do you any good.
Still, although the Fed recently hiked rates, the environment remains favorable, and refinancing can be a viable option. You need to be aware of the initial refinancing costs and be certain that it will give you lower monthly payments.
The break-even point of your loan is what the experts say you should consider. So if for example, refinancing costs you $3,000 (in closing costs and various fees) and you’ll be saving $100 per month on your payments, then your break-even point will be 30 months hence. That’s when you will recoup the costs of refinancing.
If you intend to stay in your current home longer than 30 months, then you will be saving money by refinancing. And you haven’t missed the boat (although it may take a little longer now to reach the break-even point).
Tale 2 – A Current ARM Prevents Refinancing
Maybe you took advantage, several years ago, of the low rates or special programs associated with an adjustable-rate mortgage (ARM). But now, after the early low rates, you’re stuck with those higher payments. Contrary to what some people will tell you, you can still refinance.
As long as your credit is good and other conditions align, you can refinance and get a fixed-rate mortgage this time. It will most likely be for a shorter time than the standard 30 years (usually either 15 or 23 years), but it still may be the case that a shorter-term fixed-rate mortgage will give you lower monthly payments than the later part of the ARM.
Tale 3 – A 30-Year Mortgage Is the Only Option
Most people just automatically assume that a 30-year mortgage is the only real option for financing or refinancing a home. But it isn’t, and you can save a substantial amount of money with a shorter-term mortgage.
The fixed-rate 30-year mortgage hasn’t always been the standard in this country. Prior to the Great Depression, shorter-term mortgages of 15 years or less were the standard. Then, only after the Depression, mortgages were made longer term (and were government guaranteed) to make buying a home more affordable.
Of course, distributing payments over a 30-year period makes for lower monthly payments. But in total over that 30 years, you’ll pay a lot more (in interest primarily) than you would for a shorter-term mortgage. In fact, the savings on refinancing for, say, a 15-year loan may be so significant that it might be worth looking into cutting expenses in other areas in order to afford the higher monthly payments.
Refinancing your Los Angeles home can be a frightening prospect or a ray of hope or both when it’s your best last option. You just need to make sure you don’t fall for any of the common refinancing tales that could be costing you a lot of money.