Phoenix Urban Living News. Real Estate In Phoenix Arizona

How To Know If You Should Refinance

Interest rates on mortgages and loans are extremely low. These rates are the lowest they have been in decades. Along with this low interest rate comes colossal opportunity for owners of real estate to reduce their principal and interest payments. Determining whether or not it makes sense to refinance is dependent on your unique situation, as well as if you can save enough money through the refinance to justify the expense. The analysis is a relatively straightforward, but you should understand the procedure so that you may benefit from renewing your mortgage.

If you are thinking about refinancing your mortgage, first you must look at your payoff and the monthly payment. After that, you need to look at what your new loan and payment will be after renewing the loan. If overall you will either save money or reduce your payment or both, then the refinancing your mortgage makes sense.

The simplest way to see if updating your mortgage makes sense from a quantitative point of view is to list your current payoff, the number of payments left, and your current monthly payment. Multiply the number of outstanding payments by your current monthly payment and write this number down.

Now record the amount that you will need to refinance, the new refinance term, and the approximate new mortgage payment. Simplify the calculations by using a spreadsheet, or mortgage calculator. Include your refinance costs as part of the total amount that you will be financing, bank fees, appraisal fees and transfer and escrow costs. Now repeat the same calculation as before, multiply the total number of payments by the monthly payment amount.

If you are updating your mortgage, but not pulling out any equity, the refinance makes the most common sense if you can lower your periodic payment, and if the entire amount paid (number of payments multiplied by the monthly payment) after the refinance is lower than the complete amount to be of the payoff your current mortgage. If the periodic payment is lower than your current payment, but the full amount is more, you have to decide if paying lower monthly outweighs the greater amount you will need to disburse. The opposite decision is needed if your payment increases but the entire amount due decreases. In either case, check your calculations carefully as you come to a decision.

One thing to remember with the above calculations is that the money refinanced must equal your existing mortgage. If the refinance amount exceeds the amount presently due on the mortgage then a much more complicated analysis is desirable. For this type of analysis, you will need a spread sheet with present value and amortization calculations. If you are not comfortable with these types of calculations, consult a financial adviser or accountant to assist with quantifying your decision.