Mortgage Calculator Refinance

To ensure that you do not get suckered into a bad deal, be sure to consider these potential problems:

The Cost

Refinancing your mortgage is supposed to save you money – and in many cases it does.  But, consider the true cost of making such a move.  When you refinance an existing mortgage, you are actually taking out a whole new loan and that means paying all sorts of fees.  These fees can sometimes reach 7-10% of your total mortgage amount. Making matters worse, most lender snow require borrowers to pay these closing costs up front. That means you can no longer roll them into your mortgage.

If coming up with that kind of cash is a problem, than you may not be a good candidate for a refinancing right now.

Also, look at whether or not your current mortgage holds a prepayment penalty clause.  If it does, you will be forced to pay a hefty fee.  For some loans the prepayment penalty equals six months worth of interest on 85% of the original loan amount – wow!

Another danger when refinancing your current mortgage is dealing with a new lender that charges exorbitant hidden and administration fees.  Be sure to get a complete listing before signing on the dotted line.

An Extended Loan Period

Many lenders these days are offering their current customers a drop in their interest rate and no closing costs, so what’s the catch?  For most the only way to qualify for the loan is to take it for 30 years.  Now, if you are only a few years into your mortgage and the interest rate cut is substantial enough this can be a good deal.  But, let’s say that you are already 10-15 years into a 30-year mortgage term.  The cost of adding payments (no matter how low) for another 15 years will quickly overmatch any savings you get from lowering your interest rate.  For the best deal, be sure to negotiate a loan term for the same amount of time, or less, than you have left on your current mortgage loan.

The Interest Rate

While cutting your interest rate will always save you some money, most financial experts agree that unless you can get a 1-2% (or more) rate cut, it really isn’t worth refinancing your mortgage right now.

Mortgage Insurance

If you are planning to borrow more than 80% of your property’s value, then you will be forced to pay a mortgage premium insurance fee each month (this usually equals a percentage of your loan amount).  Depending on the size of your new mortgage, this added fee could strip away any savings you get from lowering your interest rate. One thing to keep in mind however in regards to PMI is that once you reach the 20% equity limit, you can have it dropped from your payment amount.

Prepayment Penalties

In some instances, paying off your current mortgage and taking out a new one (refinancing loan) may cost you thousands of dollars in prepayment penalties.  Look over your current loan contract carefully to see if these penalties apply and if they do gauge whether or not they will eat into your overall refinancing savings.  In some instances, these prepayment penalties can equal six months (or more) worth of interest on close to the entire amount of the original loan. Of course, these penalties must also be paid in full at closing, and can not be rolled over into the new loan.

The Overall Loan Terms

Refinancing a fixed rate loan into an adjustable loan can be detrimental to your financial future, as many homeowners have found out in recent years.  Be sure that you completely understand the terms of your new loan before formalizing the agreement.  Remember, when you refinance your mortgage, you are actually taking out an entirely new loan, which means that the terms of the contract could be dramatically different than the one you have now.  This is especially important for people to realize and understand since many think that their mortgage is staying exactly the same – except of course when it comes to their monthly payment.

Mortgage refinancing these days can save the average homeowners hundreds of dollars every month; but only if they are careful and find a new loan agreement that works for them. Take the time to review each lender’s options carefully to ensure that your new loan will indeed save you money and years of making those mortgage payments.