Interest rates are at an all time low. Lower in fact than they have been
in forty years. With this low rate comes huge opportunity for home owners to
lower their payments and take some equity out of their home. The question
about weather refinancing is necessary is dependent on your current
financial situation, and what you will save versus how much the refinance
will cost. The analysis is a simple one, but one must understand the process
in order to benefit from the refinance activity.
When weighing the decision to refinance, one must simply look at your
current monthly payment and your remaining payoff period. Then compare this
to the monthly payments and required payoff after the refinancing activity.
If the benefit of refinancing outweighs the cost of the process, then the
refinance makes sense.
The easiest way to evaluate if a refinance makes sense from a
quantitative sense is to list your current monthly payment the amount left
on your mortgage, and the number of payments that you have left. Multiply
the number of remaining payments by your current monthly mortgage payment
and list this under all of the numbers.
Next to these numbers write down the amount that you are refinancing, the
refinance period, and the estimated monthly payment. The payment amount can
be calculated using a spreadsheet, or possibly a mortgage calculator like
the one found at http://www.freetrainer.com/overview.htm.
Within the amount that you are refinancing, be sure to include the cost of
the refinance, origination fees, appraisal fees and transfer and escrow
costs. Once again, multiply the monthly payment by the total number of
payments and record this number.
If you are refinancing your current mortgage and not taking out any
equity, the refinance makes the most sense if you can reduce your monthly
payment, and if the total amount paid (number of payments multiplied by the
monthly payment) after the refinance is less than the total amount to be
paid on your current mortgage. If the monthly payment is less than your
current payment, but the overall amount is greater, you must decide if
paying less monthly outweighs the increased amount you will need to pay. The
opposite decision is required if your payment goes up but the total amount
due decreases. If in either of these situations, care must be taken and the
returns evaluated carefully to make the best decision.
A caveat to the above analysis is that the amount refinanced must be
equal to the existing mortgage. If the refinance amount exceeds the amount
currently due on the mortgage then a much more complex analysis is needed.
For this type of analysis, you will require a spread sheet with present
value and amortization calculations. If you are not comfortable with these
type of calculations, consult a financial advisor or accountant to assist
with quantifying your decision.
------------------------------------------------------------
ABOUT IP WARE
http://www.freetrainer.com
With IP Ware Real Estate Investment Software, you can evaluate rental
properties in seconds. Weed out unfavorable properties in minutes, and save
weeks of research with a quick and concise analysis. Begin using this
amazing tool TODAY! http://www.freetrainer.com
