With very, and I mean very few exceptions refinancing is a very poor financial decision. I know all the arguments, I've heard all the reasons why it's suppose to make sense. The only problem....It's not factual. It's conclusion is based on flawed thinking. I'm sorry to burst bubbles out there but it is a fact. Let me explain.
It is generally agreed that you must at least be dropping your current interest rate 2% or more for the numbers to make sense. It's been some time now since we saw 6.5 to 7.5% interest rates. However let's just say that it has only been three years. By refinancing you could look at saving approximately $ 300.00 per month on your monthly house payment. Man that sounds really great, until you really look at what it's costing you.
When you refinance your home you get to pay for a new Owner's Title Policy.
On a $ 200,000 home that's approximately $ 1,500. You pay the loan officer at least a 1% origination fee and thats another $ 2000.00. There will be closing cost fees, underwriting fees, appraisal fees, processing fees, etc. Let's say that amount comes to another $ 1,500 dollars. So to refinance your home you get to shell out approximately $ 5,000. Now they will tell you it won't cost you a dime out of your pocket and that is true. They just roll all the cost into your new loan. Thats called giving back all your equity in one day. But hey you're going to save $ 300. per month. However that means it will take you almost 17 months before you break even, but you've financed it back in an still owe it.
But that's not the worst part. Since you purchased your home, say 3 years ago, you've given the mortgage company approximately $ 50,000 and now you're starting all over from the beginning. You may be saving $ 300. per month but it's cost you approximately $ 55,000 to do it!
Since most families still move around 7 years to a new home, you just may have given up so much money that you can't move at all. Why?, because you've given up so much of your equity.
The way to take advantage of the current low interest rate is to buy another home. You may find the sellers very negotiable, willing to pay your closing costs and more. You also may find a brand new home with far more energy efficient appliances, ac units and radiant barrier construction in the attics.
It may not be the time for you to move right now, but I'm just saying before you refinance your home stop and really give it some thought.
Blessings
Al Davis
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