Mortgage closing costs can range in the thousands. Due to this fact, property owners must be careful to choose the perfect times for refinancing and the right loan terms. If they don’t, they could take years to break even. Moreover, they’ll have zero amortization and significantly extended loans. Following are several ways to determine whether or not refinancing is the right decision for you.
How Long Will It Take You to Break Even?
When you break even, you’ve successfully recovered the administrative fees for your new mortgage in the form of monthly savings. For instance, if you pay $3,000 to refinance your mortgage loan and save $200 a month due to your new and lower mortgage payment, you’ll break even in exactly 15 months. The lower your new interest rate, the faster this will happen. If you only manage to drop your interest rate by just one to two percent, however, breaking even will take more time. Most mortgage lenders have refinancing calculators that homeowners can use to calculate their savings and the length of time that it will take to recoup the monies that they’ve spent. If you can break even within a reasonable amount of time and the resulting changes in your mortgage payment free up a considerable amount of cash each month, now could be the perfect time to lock into a new loan.
How Long Do You Plan to Live in Your Current Property?
If you just purchased a house for sale in Irvine, and are thinking ahead about future options, keep in mind most homeowners live an average of five to seven years in their new homes before either outgrowing them or deciding to move on for other reasons. When you refinance, you’re basically resetting your mortgage clock by taking on a loan that satisfies your old one and starting the amortization process anew. This can limit your flexibility when it comes to a future move by diminishing your chance to break even before you sell and by depleting the equity that you’ve built.
Your Financial Circumstances
If you’ve had a major change in income and are struggling with your mortgage payment, however, refinancing could be the best way to retain your home, your savings, and your peace of mind. A lower mortgage payment often means having the ability to stay on top of ownership expenses while resolving unexpected, income-related problems. Taking a bit longer to break even is of far less importance if your primary goal is to maintain your ownership status and make your monthly expenses more manageable.
Irvine Residential Living is a trusted real estate brokerage based in sunny Irvine, CA. Our experienced real estate agents represent both buyers and sellers, using our expert knowledge of the area to get buyers into their dream homes and sellers out of their current homes as fast as possible. For more information or to schedule a showing, call (714) 454-6304 for more information.