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Refinancing Your Mortgage

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Refinancing Your Mortgage Could Save You Thousands...

Many individuals have found that they were able to save thousands of dollars in interest charges and, at the same time, lower their monthly payments by refinancing their current mortgage. Depending on the total amount of equity that you currently have in your home, you might also be able to consolidate bills and secure cash for any worthwhile purpose.

The 2% Refinance Rule

Generally, there is a misconception that if you can reduce your interest rate by 2% or more, then it's a good time to refinance your mortgage. We call it a misconception only because many homeowners wait for that 2% difference when they could be saving a considerable amount of money with a rate reduction of 0.5% - 1%. The refinance amount and the number of months that are remaining on your mortgage are the key factors to take into consideration when you are contemplating this type of action. For the most part, it is probably a good idea to refinance when there is a 2% rate difference, but there are many other instances that make perfect sense to refinance your mortgage when there is less than a 2% difference.

If you are seriously considering the possibilities of refinancing your mortgage, it will definitely be to your best interest to call one of our friendly mortgage specialists today and allow them to provide you with a "free cost comparison". By utilizing this service, you will have the necessary information that you will need to make an informed decision. Refinancing your mortgage and lowering your monthly payments may not always be your best move. The following example shows how reducing your interest rate only 1% can lower your monthly payments considerably and save you thousands of dollars.

Comparison Example

This comparison will be for a homeowner that has a 30 year mortgage with a $200,000 balance. The original loan amount was $206,455. The interest rate is 7.25%, which is a rate that many consumers currently have. Often, homeowners tell us that they don't see the need to refinance their mortgage with an interest rate of 7.25%. Hopefully, after you have had an opportunity to review the following information you will see that there was a definite need to do so.

The refinance amount that is being used in this example is $203,000 (mortgage balance of $200,000 plus estimated closing costs of $3,000). Your actual closing costs will vary depending primarily on how much money is in your escrow account which will be needed to pay your taxes and insurance premiums. We will not take into consideration how many years the mortgage loan was originally financed for, but only the remaining term of that mortgage.

Please remember that lowering your monthly payment is not always in your best interest. Anyone can show you a lower payment by extending your term, but if you sell your home and owe far more than you would have on the existing mortgage, you just cost yourself money unless you saved enough to recoup the difference each month. This is just another good reason for you to call Louisiana Mortgage Associates and secure a "free cost comparison". We will also show you a comparison using the current term that you have remaining on your mortgage with the proposed interest rate.

Disclaimer

Current 30 Year Mortgage
Years Remaining Monthly Payment Balance in 5 Yr Balance in 10 Yr Interest Rate
27 $1,408 $185,584 $164,893 7.25%

Refinance Comparison
Years to Refinance Monthly Payment Balance in 5 Yr Balance in 10 Yr Interest Rate
30 $1,250 $189,474 $171,002 6.25%
* 27   $1,299 $186,059 $162,922 6.25%
25 $1,339 $183,209 $156,180 6.25%
20 $1,484 $173,052 $132,151 6.25%
15 $1,672 $153,204 $ 87,279   5.625%


The above comparison utilized a 27 year mortgage even though a mortgage of this duration cannot be secured. This gives you the opportunity to compare apples to apples, instead of apples to oranges.


The above information really demonstrates the incredible power of interest rates. Lets take a minute and look at the 27 year examples. The monthly payment listed for the Current Mortgage is $1,408 and for the Refinance Comparison, is $1,299. Although the initial amount to be financed was increased by $3,000 (for closing costs) and the interest rate was reduced by only 1%, the monthly payments dropped a whopping $109. That's $1,308 less per year. If you compare the balances and the monthly payment savings after 5 and 10 years, you will now begin to see why refinancing this mortgage was a great move. After 5 years, the total savings amounts to $6,065 and after 10 years, $15,051.

The majority of consumers would choose the 30 year term since their main objective was to lower their monthly payments. As previously stated, it's not always to your best interest to lower your payments if the future balances did not warrant the change. However, this example would make perfect sense for the homeowners since their payment was lowered by $158 per month ($1,408 - $1,250). Please note that the difference in future balances was not that substantial. The reduction of monthly payments would create a savings of $1,896 annually and their balance in 10 years would only be $6,109 more. For most families, the additional $1,896 of spendable income each year would be greatly welcomed.

The tremendous power of interest can really be seen when you look at reducing your current mortgage term of 27 years to a reduced term of 20 years. The current monthly payment above is $1,408 and the new proposed payment would only be $1,484, a mere $76 difference. While these 2 payments are very close, keep in mind that this homeowner would be cutting 7 years off their mortgage term. When you review the future balances above, you will be able to see that this homeowner would have gained $32,742 in 10 years ($164,893 - $132,151). Do you know of an investment today that would be worth over $32,000 in 10 years for a payment of $76 per month? That's more than 250% profit on your investment. That's an average of 25% profit per year and it is risk free.

You can carry the previous example a step further when considering a safe way to invest your money by going to a 15 year mortgage term, instead of 20 years. If current mortgage conditions dictate an interest rate of 6.25% on a 30 year mortgage, you could probably reduce your interest rate 1.625% on a 15 year term. Therefore, we used a rate of 5.625% (7.25% - 1.625%) on the comparison above and cut 12 years (27 years - 15 years) off the current mortgage for only $264 per month ($1,672 - $1,408). Now take a look at the loan balance after 5 years. If this home was sold at that time, this homeowner would have netted $32,380 ($185,584 - $153,204) which would be more than double their investment. If you were going to sell your home in 5 years, wouldn't you prefer receiving an additional $32,380? Sure you would.

One of the main reasons that most homeowners don't refinance is because they just don't seem to find the time to sit down and discuss all of the pros and cons with their bank or mortgage company. We have really made it easy for everybody. We can take all the information that is needed to get you approved in about 10 minutes and we can even do it over the phone. Imagine that, we can get you approved without ever making a trip to our office. How easy can it be?

Hopefully, the above comparisons have helped you to understand just how important it is to refinance your mortgage after carefully examining all of the facts. We know that is quite difficult for most individuals to compile this type of information. That is exactly why we offer a "free cost comparison". We, at Louisiana Mortgage Associates in Lake Charles want to be your "One-Stop Shop" for your "Homegrown Home Loan". If you are calling from other parts of the state, please call us toll-free at 888-475-3273.

Apply Online Now!

After you have applied for your loan, one of our friendly staff will contact you and help you to secure your financing. If you should have any questions, simply pick up the phone and give us a call.

If you would like to get some sort of idea as to what your monthly payments would be prior to submitting an application, please click here to secure a "Quick Quote".

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Louisiana Home Loans and Mortgage Services
Home Purchases  |  Refinancing Loans  |   Debt Consolidation  |   Home Equity Loans  |   2nd Mortgages  |   Home Improvements
Apply Now  |   Mortgage Calculator  |   The Learning Center  |   Your Valued Opinion  |   Contact Us
Site Map  |   Realtor's List  |   Commercial Loans  |   Builder's List  |   Q's & A's
Homes for Sale by Owner  |   Free Home Locator Service


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