In today’s home financing most people already have a great rate.  When looking to refinance your current loan to save money there are a few things you must know to potentially still save money.

Payback Period

In order to analyze the value of a refinance you must calculate the payback period.  In order to do this you divide the net closing costs by the monthly payment savings, this will tell you how many months you need to save in your payment to make up for the closing costs you pay upfront or finance into the new loan amount.  For example, if the closing costs are $3,000 and the payment savings are $100/month, then the payback period is 30 months.  Normally I recommend avoiding a payback period greater than 42 months and encourage a target of 36 months or less, it rarely makes sense if it takes longer than 3.5 years to refinance.  You can adjust the closing costs by taking a rate slightly higher than the lowest rate and this can dramatically impact your payback period.

Accelerating Payoff of Your Loan

Often my clients may not need a payment savings.  This is usually because they already have a great rate and the rate they would get on a refinance with a short payback period is not great enough to to be meaningful.  In this case I always suggest looking a new loan with shorter payback period.  For example, say you have made 36 payments on your current 30 year loan, meaning you have 27 years of payments remaining.  In this situation, I look at how many months you can cut off your loan by reducing your rate, but paying the same payment as you pay now.  Often we can find ways to cut 4-10 years off the current mortgage with this strategy.

Refinancing Bottom Line

My recommendation is to periodically have a mortgage review to see if there is a chance to reduce your payment with a lower rate or reduce the number of payments to make on your loan.

Tim Swierczek, MMS

NMLS# 103522

Tim Swierczek Zillow 5 Star Lender

{ Comments on this entry are closed }

97% Conventional Financing with Down Payment Assistance

April 19, 2016

Often buyers use FHA for their first time home purchase, particularly when they need down payment assistance.  The problem for these buyers is that some properties do not qualify for FHA financing.  In addition, when competing for properties in multiple offers sellers prefer conventional financing over FHA financing.  For these reasons, it’s sometimes prudent to […]

Read the full article →

FHA’s Deferred and Income Based Repayment (IBR) Student Loan Policy

April 18, 2016

In a somewhat surprising announcement FHA announced it was changing the way it underwrites student loan debt.  On the surface the move looks positive, however I think it will hurt lower income borrowers and it will help a few conventionally qualified buyers stretch their budget when needed and here’s why.
 
First, the positive is that FHA ‘s […]

Read the full article →

MHFA Deferred Plus Targeting Criteria 2016

April 14, 2016

First time homebuyers who qualify for the deferred payment loan from Minnesota Housing but need more than $5,500 in order to purchase may potentially qualify for up to $7,500 deferred assistance provided they meet what is called targeting criteria.  The additional amount s called the Deferred Payment Loan Plus or DPL Plus for short.
Borrowers should only […]

Read the full article →

2016 Minnesota Housing First Time HomeBuyer Income Limits

April 13, 2016

Click here for our Down Payment Assistance Finder!  
I’m often asked about first time homebuyer programs.  There are programs are designed specifically to assist buyers with little to no money but stable monthly income purchase a home, and for those buyers these programs are a great way to buy a home.  They are available to […]

Read the full article →

Down Payment Assistance Basics

January 20, 2016

When buyers ask about down payment assistance or even first time home buyer programs they inevitably think that the programs are either 1) better than if they were not a first time home buyer, or 2) the assistance is a free grant.  Unfortunately, neither of these beliefs are true.  First time home buyer programs are designed […]

Read the full article →

Defining Co-signer vs Boarder vs Renter vs Non-Borrowing Occupant Income

December 9, 2015

Consumers often confuse Co-signer vs Boarder vs Non-Borrowing Occupant income and they are treated differently. Let’s define the different types of income.
Co-signer
A co-signer is a person who is on the loan application with the primary borrower, but will not live in the property being financed.  Co-signers are usually relatives of the borrower and the presence of a […]

Read the full article →

DEAR TIM, You got us a FHA 203K can we now refi into a FHA 203B?

November 3, 2015

Hi Tim,
Pam has noticed there is a 203B loan you can switch to once the 203K rehab loan has been completed. Can you tell me what that is specifically, how we would go about changing loan types, and what any pros/cons there are to it if we were to switch to that would be?
Thanks! GRANT
 
Hey […]

Read the full article →

January 26, 2012 HOME HELP Update

January 26, 2012

Just announced:
Thursday, January 26, 2012
HOME HELP Program Updates
Increase in HOME HELP Amount
Effective for first mortgage Community Activity Set Aside (CASA) loan commitments on or after Monday, January 30, 2012, the HOME HELP amount is $10,000 up from $8,500.
MN Housing has also Revised HOME HELP Program Income Limits
Minnesota Housing has updated the HOME HELP Program income […]

Read the full article →

Minnesota Mortgage Program (MMP)-Spotlight Areas Updated

August 15, 2011

Minnesota Housing (MHFA) recently updated its MMP spotlight areas.  Spotlight areas are targeted zip codes that allow first time homebuyers in Minnesota to get $3,000 in down payment assisance to go along with Minnesota Housings exceptionally low rate MMP program.  In the announcement MHFA said they have been reduced in number to better align available […]

Read the full article →