When we bought our house, we got a 6.5% interest rate.  Not too bad when we’re talking interest rates – BAD when you’re talking about it on a large sum of money.  Monthly, we currently pay $196 towards principal (actual house).  You may say “oh well that’s fine” but the problem is this.  We pay over $1500 a month for our mortgage.  NOW it’s a situation where you go “OH WOAH! That’s crazy”.  And it is. 

I started doing some research and it was amazing what I found.

The benefits are overwhelming.  There will be an out of pocket expense for closing costs (it’s just like you’re buying your house again) but you will typically recoup those costs within a few years.  DO NOT refinance your home if you’re not planning on staying there for a length of time.  If you are planning on staying for years to come, then by all means refinance and take advantage of the super low rates offered today.

Benefit #1 – You can save money over the life of your loan.  When you’re paying on your house for many years you’re paying mostly interest.  For example, if you have a mortgage payment of about $1040 (not including taxes, etc) you’re probably going to be paying roughly $200 a month on your house and the remaining amount on interest.  By refinancing, you can lower your interest rate which allows you to pay more towards your principal.  This does not mean that the tables will turn and you will now be paying $800 towards principal, but the amount will be more towards principal.  When buying a house with a home loan, interest is inevitable.

Personally – we’ll save over $100,000 over the life of our loan.  More if we pay it off early. 

Benefit #2 – You can lower your monthly payment.  This is the same concept as benefit #1.  If you refinance you’ll get a lower interest rate which in turn will lower your monthly payment.

Benefit #3 – Lessen the length of your loan. If you have a 30 year loan and you reduce that to a 15 or a 20 year FIXED RATE (that’s key – remember!!), you’ll be saving 10 YEARS of interest payments!  Your monthly payment will go up, but more than likely not by that much (depending on how long you’ve owned your home and what type of loan you have).  I can’t think of a better reason to refinance!!

Benefit #4 – Build equity faster!  This ties into benefit #3.  If you refinance your home for a lesser amount of time, you’re going to build equity faster.  You’ll be paying your home off faster thus, increasing the amount owed vs. amount paid and with appreciation of the property – this is equity!

Benefit #5 – Change your loan program type.  If you’re in an ARM, or Adjustable Rate Mortgage, situation you need to get out of this and FAST.  If your interest rate hasn’t skyrocketed yet – it will – and you’ll more than likely lose your home because you won’t be able to afford it any longer. 

Benefit #6 – Improve your credit score.  When you make your payments on time, your credit score improves over time.  In today’s society, credit is king.  Keep that credit score looking good for future endeavors!

The benefits of refinancing RIGHT NOW are incredible.  There should be no reason NOT to refinance unless you got lucky and got a 4.6% or another insanely low interest rate, there’s no need to refinance.  But, if you can shave 1% – 1.5% off of your rate – it’s well worth your time. 

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