Time Value of Money
Take away and my suggestion
I prefer to refinance my mortgage; this is because refinancing will help to lower the interest rate of my existing loan. Refinancing is an essential suggestion in finance, and I encourage homeowners to adopt it, but it can only work well if the interest rate is reduced by at least 2%. When I lower my interest rate not only enables me to save money, but it also increases the rate at which I build my equity, and therefore decreasing my monthly size of payment.
What to consider when deciding whether to refinance mortgage
To refinance my mortgage, I will consider four-factor my current interest rate, refinance cost effects of paying my loan longer, and my home equity. I will start by considering the number of years remaining on my current mortgage and how long I am going to stay in my home. After that, I will look at the costs of attaining a new loan associated with the amount of interest I will save. To enable me to avoid basing my analysis just on the input savings, I will lower my interest rate, but setting it to a future period like 30 years without leveraging the savings, because it will cost me more in the long run.
The difference between closing costs and a “no-cost” loan
A loan with closing costs refers to a loan that has expenses related to getting a new loan, such as lender fees which are in the investment and are paid by the borrower to the lenders. On the other hand, “no-cost” loan refers to a loan which substitutes a higher interest rate of costs to the loan. The higher interest rate acts as a premium to the lender when they sell a loan, the premium results in the lender paying closing costs on behalf of the mortgagor. Therefore, “no costs” is a perfect alternative for homeowners to refinance their mortgage again if they will not remain in their homes in the future, because it will enable them to enjoy lower interest rates without losing any equity.