Refinance

(When to consider this decision)

Due to the changes in the mortgage rates a large portion of the home mortgage homeowners have, or will be in situations where they might consider refinancing their home loans. There is a significant relationship between interest rate decline and refinancing activity. The reason behind this is simply the home owner can save considerable finance charges.

 I use the BA II Pus by Texas Instruments for my calculations.

 Thus, I enter the data as follows

N +360; I/Y= 6; PV =$200,000; PMT=? ; FV=0 After entering N; (I/Y?12),PV’; and FV I enter CPT then PMT and the answer is $1,199.10

Doing the same problem but changing the I.Y to 4

 The payment would be $954.83 or a monthly savings of $244. 27 and yearly savings of $2,931.24. However, because of the cost size and the benefits involved refinancing that mortgage borrowers should consider with caution.

The first step after deciding to look into it is to determine if it is worth the cost.

Net benefit = Benefit of reduction – cost of refinancing.

Let say the person in our example has been in their home for five years so their benefit would be $2,931.21 X 25 or $73,280.25 But the cost to refinance is $10,000 so their savings would be $63,280.25 which most would think of as worth wile.

The other factor which should be considered is the personal cost and Income Taxes.

What is your time and frustration worth for figuring this problem out. Then we need to consider the reduction in our exemption for or Income Taxes. A reduction in mortgage payment will reduce of exemption and increase or tax payment. This applies to U.S. homeowners who itemize their tax deductions.

There is a general rule of thumb used to know when to consider refinancing. When your interest rate would drop two percentage points refinances. Some consider the second part of our scenario to also be a rule of thumb but I don’t separate the two equations. I my mind they need to be worked out together in order to arrive at an educated decision.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.