To Refinance or Not to Refinance? That is the Question
How Low Do Interest Rates Have to Go Before Refinancing Your Home Makes Sense?

If you currently carry a mortgage with an interest rate of 8.5 or higher, the Federal Reserve's recent rate drops may "hit home" — offering many of you benefits that directly impact your wallet. Considering refinancing, but not sure if it is the right option, right now? Here's how the experts at Century 21 Real Estate Corporation (Century 21®) determine if and when it makes sense for you.

Like gasoline, food, and medicine, money is a commodity. Which means, like all commodities, money has a price. The price of the money you borrowed to buy your home is the interest you pay through installments every month. Because interest rates are inherently tied to fluctuations in the economy, you would assume when news outlets report declining interest rates, the value of money is also declining. What does this mean to you — assuming you already have a mortgage and are already making monthly payments on your home? It means refinancing is an option that may allow you to reduce your monthly mortgage payments. With a mortgage refinance, you are actually re-paying your existing home loan and borrowing new money to pay for your house at a lower-price.

How can a homeowner determine if refinancing produces a justifiable savings? Let's assume a homeowner holds a $140,000 mortgage with an interest rate of 8.75 percent. He is currently paying $1,101 in monthly principal and interest. Based on an interest rate of 7.25 percent, refinancing a $140,000 loan would result in a reduced monthly payment of $955, or a monthly savings of $146. Now lets assume the closing costs to secure the new loan are $3,500. Is it worth refinancing? Yes, because the monthly savings of $146 totals $5,256 over three-years, which exceeds the $3,500 in up-front closing costs. Over the life of a thirty-year loan, this refinance will save a whopping $52,560.

Obviously, in this case, it would make sense to refinance. Or, for more specific questions, call Us at Century 21 Alliance at 1-888-858-3344 E-mail Us   Free home valuation. Complete our short questionnaire.

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