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The mistake of not refinancing because your rate does not go down by over 1 percent.

 

The amount of bad advice that is dispelled to home owners causes thousands of dollars in wasted money. Examining the falicy of a one percent refinance myth.

There is a common myth that home owners should not refinance their mortgage unless they can drop their interest rate by over one percent. If you have a financial advisor or accountant that tells you to follow this rule of thumb, then you should Fire Them Now!.

This is horrible financial advice. If you are a home owner with a balance of 175k and you drop your interest rate by only 1/2 a percent this could save you thousands of dollars in interest. If the costs associated with refinancing your mortgage can be recouped in a time frame that your plan to own your home then this would be a smart decision. If your fear is that you now reset your loan term back to thirty years, you could always continue to make the same payment. For example, your mortgage balance is 150k and your interest rate is 6.5%, you should have a house payment of $948. If you refinance your mortgage and drop the rate to 6%, your payment would adjust to $900 per month. Over a thirty year period this is $17,280 worth of interest on a mortgage loan. Looking at this in a different manner, if you were three years into this loan and had 27 years left to pay off your loan and were concerned about the refinance, if you continue to make a payment of $948, (but now with a 6% interest rate) on your mortgage you would have your home paid off in 25 years. The larger your loan balance, the lower the difference between your existing mortgage rate and new mortgage rate need to be for a refinance to make sense.

5-25-2008 ? LoanNetwork.com

 

 

 

 

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