People refinance their home loans for many reasons, and you might want to refinance yours right now. If you are thinking about this, then you may want to consider your break-even point before going through with it. Your break-even point tells you how many years it will take for you to break even and make refinancing financially wise. Here is an explanation of how to do this as you consider refinancing your home mortage.
Determine the Savings for the Year
The first step you must complete is determining the amount of money you will save for an entire year if you refinance. You can do this by examining two sets of numbers: your current mortgage payments and your potential ones through refinancing. You may need to ask your lender how much your new payments would be if you refinanced.
Once you have these numbers, you can multiply your current payment times twelve to determine your current annual mortgage costs. Next, you can multiply your new payment times twelve to see how much you will spend annually if you refinance.
Finally, you can subtract the new annual amount from your current annual amount to see how much money you will save each year from refinancing. For example, if you are currently spending $12,000 each year for mortgage payments and will spend $10,000 after refinancing, then you will save $2,000 a year by refinancing.
Consider the Costs of Refinancing
The next step is to consider the costs of refinancing. How much are the fees for this service? You will need to know this amount to find your break-even point. Suppose the fees are $3,200 to refinance. You can then divide $3,200 by $2,000 to come up with the number of years it will take to break even. In this example, the break-even point is 1.6 years. In other words, it will take 1.6 years to break even from the costs of refinancing.
If you plan on living in the house for at least 1.6 years, then refinancing might make sense. If you want to live in the house for much longer than 1.6 years, refinancing is probably a smart move to make.
Refinancing is a process that takes time, and it begins with an application. If you want to consider refinancing your home loan, you can begin by speaking with a mortgage lender to learn more about the process, requirements, and steps.Share