3 Simple Steps to Assess the Value of Refinancing Your Home
You can lower your payment and maybe retire your mortgage sooner.
Step 1
Check www.mortgagemarvel.com to see how low a rate you could get and how much you’d pay in closing costs. Forget the rule of thumb that to refinance your mortgage you need to reduce your rate by two percentage points. The question is whether you will stay in your home long enough to recoup the closing costs with savings on your monthly payments. You will need at least 5% equity in your home to qualify, and lenders may require a minimum credit score of 660 if you have less than 25% equity. The higher your score, the better your rate.
Step 2
For a rough idea of how long it will take to break even, before you will realize any savings, subtract the new monthly payment from your current one and divide that into the total closing costs. For a more accurate picture, use the Mortgage Professor’s refi calculator, which also factors in unrealized interest on your closing costs and lost mortgage-interest tax deductions, resulting in a longer break-even period. Say you have a 30-year, $200,000 mortgage at 4.8% and can refinance at 4%. According to the calculator, you’d lower your monthly payment of principal and interest from $1,146 to $984, assuming you finance the estimated $6,000 in closing costs. It would take 70 months to break even.
Step 3
You can lower your rate even more and cut the payoff time in half with a 15-year mortgage, but your monthly payment won’t be as low. Or ask the lender to set a payback period equal to the number of years remaining on your old mortgage, and it will adjust the payments to reflect the term.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The payoff
You’ll lower your payment and maybe retire your mortgage sooner.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Five Ways to Make Retirement a Little Less Scary
To avoid lying awake at night once you’re retired, consider having these strategies in place before you take the plunge.
By Evan T. Beach, CFP®, AWMA® Published
-
With Irrevocable Trusts, It’s All About Who Has Control
An irrevocable trust must be carefully funded, structured and managed to achieve both asset protection and tax planning.
By Rustin Diehl, JD, LLM Published
-
403(b) Contribution Limits for 2024
retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
By Jackie Stewart Published
-
Roth IRA Contribution Limits for 2024
Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
By Jackie Stewart Published
-
Best Foreclosure Sites for Finding Properties
Making Your Money Last Wondering how to find foreclosed homes for sale for your next residence or to flip for a profit? These websites will guide you to foreclosures and real estate-owned properties to buy.
By Bob Niedt Last updated
-
Luxury Home Prices Rise as the Rich Dodge High Mortgage Rates
Luxury home prices rose 9% to the highest third-quarter level on record, Redfin reports, growing nearly three times faster than non-luxury prices.
By Kathryn Pomroy Published
-
Four Tips for Renting Out Your Home on Airbnb
real estate Here's what you should know before listing your home on Airbnb.
By Miriam Cross Published
-
Five Ways to a Cheap Last-Minute Vacation
Travel It is possible to pull off a cheap last-minute vacation. Here are some tips to make it happen.
By Vaishali Varu Last updated
-
How Much Life Insurance Do You Need?
insurance Instead of relying on rules of thumb, you’re better off taking a systematic approach to figuring your life-insurance needs.
By Kimberly Lankford Published
-
When Is Amazon Prime Day?
Amazon Prime In 2023 Amazon had two Prime Day events — one in July and another, called Big Deal Days, in October. We expect 2024 to follow the same schedule.
By Bob Niedt Last updated