The 5's of Refinancing - Is It Worth It?
Refinancing is on a lot of minds right now due to the current climate, but is it really worth it? While we are not financial experts, Your Favorite Real Estate Team is the best real estate agency at the Lake of the Ozarks and we have some tips that could help. Today we are covering a few general guidelines you may want to follow when making the decision to refinance. (Of course, before you make any major financial decision, it is a good idea to consult with your financial advisor.) It is said that you should follow the Rules of 5 when considering whether or not it is a good time for you to refinance. Read on to learn more!
In past years, the advice was that you should only refinance if it would save you 1-2 percentage points; however, that has changed in more recent years. As rates become lower overall, percentage points can make a bigger difference with smaller adjustments. Therefore, the current recommendation is that your new interest rate should be at least 0.5 percentage points lower than the current interest rate on your mortgage. So if your current interest rate is 5.0%, then a new rate of 4.5% could be worth taking the leap.
Another important thing to consider is how much time a refinance will add to the complete length of your loan. If it is going to add another ten years to the amount of time you're paying off your house, then it is likely not worth it. Not only will you be paying for a much longer amount of time, but you will also end up paying significantly more overall. A good number to use as a guideline is ... you guessed it ... five! It is best to add just five years or less to the length of your loan. For example, if you started with a 30 year mortgage seven years ago, then it's probably best to not refinance with another 30 year mortgage. That would mean adding 7 years to the overall length of your loan. Try sticking to 5 years or less. If you can take time off your loan, that would be even better!
Closing costs are an unfortunate part of every home purchase or refinance. If you're paying closing costs that are too high, the new lower interest rate may not be worth it in the long run. To determine how long it will take for your new loan to pay for itself, take the costs of closing by the the amount you will save each month. That will give you the length of time it will take. It is recommended that this number be no more than five years in order to make the refinance worth it.
Refinancing is a big decision that could set you up for a lot of savings if done at the right time. To decide whether or not now is a good time for you, consider the Rule of 5's and speak with your financial advisor. Make sure you weigh all your options to make sure you don't get into a situation that is too much to handle down the road. Your Favorite Real Estate Team also thinks it's important to consider your regular monthly budget as well as the security of your income before taking the plunge and refinancing. As the best real estate team at the Lake of the Ozarks, we are here for you no matter what. Next time you're looking for a dream home or lake house, give us a call! 573-240-9052
Point 5 Percent
In past years, the advice was that you should only refinance if it would save you 1-2 percentage points; however, that has changed in more recent years. As rates become lower overall, percentage points can make a bigger difference with smaller adjustments. Therefore, the current recommendation is that your new interest rate should be at least 0.5 percentage points lower than the current interest rate on your mortgage. So if your current interest rate is 5.0%, then a new rate of 4.5% could be worth taking the leap.
5 Years Added
Another important thing to consider is how much time a refinance will add to the complete length of your loan. If it is going to add another ten years to the amount of time you're paying off your house, then it is likely not worth it. Not only will you be paying for a much longer amount of time, but you will also end up paying significantly more overall. A good number to use as a guideline is ... you guessed it ... five! It is best to add just five years or less to the length of your loan. For example, if you started with a 30 year mortgage seven years ago, then it's probably best to not refinance with another 30 year mortgage. That would mean adding 7 years to the overall length of your loan. Try sticking to 5 years or less. If you can take time off your loan, that would be even better!
5 Year Recovery
Closing costs are an unfortunate part of every home purchase or refinance. If you're paying closing costs that are too high, the new lower interest rate may not be worth it in the long run. To determine how long it will take for your new loan to pay for itself, take the costs of closing by the the amount you will save each month. That will give you the length of time it will take. It is recommended that this number be no more than five years in order to make the refinance worth it.
Refinancing at the Lake
Refinancing is a big decision that could set you up for a lot of savings if done at the right time. To decide whether or not now is a good time for you, consider the Rule of 5's and speak with your financial advisor. Make sure you weigh all your options to make sure you don't get into a situation that is too much to handle down the road. Your Favorite Real Estate Team also thinks it's important to consider your regular monthly budget as well as the security of your income before taking the plunge and refinancing. As the best real estate team at the Lake of the Ozarks, we are here for you no matter what. Next time you're looking for a dream home or lake house, give us a call! 573-240-9052
CONTACT ED SCHMIDT FOR ALL YOUR LAKE OF THE OZARK REAL ESTATE NEEDS
Ed Schmidt, REALTOR
752 Bagnell Dam Blvd. Suite A
Lake Ozarks, Mo 65049
Phone: 573-240-9052
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