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Last Updated: Jul 2nd, 2008 - 21:15:22 |
(NAPSI)-The time may be ripe for homeowners with a high interest rate or nonfixed-rate mortgages to think about refinancing to lower-cost options.
Even if interest rates don't rise appreciably as forecast in coming months, the idea of refinancing has plenty of beat-the-clock appeal to homeowners. That's especially true if you have an adjustable-rate mortgage (ARM) that may inch upward if interest rates begin the expected climb.
According to www.BankofAmerica.com, a refinanced loan simply means the homeowner changes the interest rate or type of loan to lower the monthly payment.
But the go or no-go criteria rests on the payback period between what you pay in closing fees and what you save each month. If the period is relatively short, the homeowner would do well to get into the "refi" queue at the bank.
But the chance to reduce monthly payments is ample incentive for homeowners. Bob Caruso, a loan servicing executive for Bank of America, says, "If a homeowner can trim monthly payments to a consistent amount and remove the interest rate variables, it really is worth a close look."
Caruso's rule of thumb is if homeowners are intent on staying in their home some length of time-for example, three to six years-then a refinance makes sense. The longer you intend to stay in your home, the more worthwhile a refi becomes.
Readily available online calculators can help your decision. For example, let's say you pay $1,200 per month on a $100,000 balance to an existing ARM that is ready to reset at 7 percent. You could refinance at a 6.50 percent rate.
Refinance calculators at www.bank rate.com show monthly savings of nearly $500 on a refinanced fixed rate mortgage over 30 years. Application and closing fees are estimated at $2,650. The payback period: a scant six months.
That's why owners of ARMs are particularly rewarded by refinancing. Each upward tick in mortgage interest bumps up the monthly ARM payment. A refinanced mortgage that locks you in a stable, fixed-rate loan is a way to escape any unwelcome surprises in your mortgage payment.
There are upsides beyond a lower monthly payment. You may also save on interest payments over the life of the loan. Or, homeowners who've amassed equity in their home can channel the refinance savings into home equity loans or lines of credit for any number of uses, including funding for college education, debt consolidation, travel, home improvements or other uses.
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