Current Mortgage Rates
Saturday, September 06, 2008
To help you decide on the right time to refinance, you need to determine your break-even point. In other words, you need to know how long it will take for the money you save with your new mortgage to exceed the costs of acquiring it.
Step 1: Subtract your new monthly payment from your old monthly payment to calculate the savings each month. For example: Say you have $170,000 of principal remaining on a 30-year fixed-rate mortgage you took out 5 years ago at 8 percent:
Your current monthly payment is $1,312. If you refinanced to a new 30-year mortgage at 6.5 percent: Your new monthly payment would be $1,075.
$1,312 (Old monthly payment) - $1,075 (New monthly payment)
= $237 (Savings per month)
Step 2: Divide the closing costs of your new loan by the monthly savings to calculate your break-even point. For example: If the closing costs are $4,800:
$4,800/237 = 20.25 months
So, according to this formula, you start to save on your mortgage refinancing in less than 21 months. In reality, a break-even analysis is more complicated. Nevertheless, a straight-line calculation gives you a reasonable estimate. One common rule of thumb is the 2-percent rule, which says that refinancing is a good deal if you can lower your mortgage interest rate by at least 2 percentage points. Other factors also ultimately affect your decision, such as how long you plan to continue living in the home. As mortgage rates go lower, this rule of thumb is less and less meaningful. For a more complete analysis, you have to consider any loss of tax savings, as well as whether you invest the money you save each month from lower payments.
Step 1: Subtract your new monthly payment from your old monthly payment to calculate the savings each month. For example: Say you have $170,000 of principal remaining on a 30-year fixed-rate mortgage you took out 5 years ago at 8 percent:
Your current monthly payment is $1,312. If you refinanced to a new 30-year mortgage at 6.5 percent: Your new monthly payment would be $1,075.
$1,312 (Old monthly payment) - $1,075 (New monthly payment)
= $237 (Savings per month)
Step 2: Divide the closing costs of your new loan by the monthly savings to calculate your break-even point. For example: If the closing costs are $4,800:
$4,800/237 = 20.25 months
So, according to this formula, you start to save on your mortgage refinancing in less than 21 months. In reality, a break-even analysis is more complicated. Nevertheless, a straight-line calculation gives you a reasonable estimate. One common rule of thumb is the 2-percent rule, which says that refinancing is a good deal if you can lower your mortgage interest rate by at least 2 percentage points. Other factors also ultimately affect your decision, such as how long you plan to continue living in the home. As mortgage rates go lower, this rule of thumb is less and less meaningful. For a more complete analysis, you have to consider any loss of tax savings, as well as whether you invest the money you save each month from lower payments.
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No Cost Refinancing?
What is a Mortgage Refinance?
What is cash-out refinancing?
Refinancing into a Bigger Loan?
Why Won't My Refinance Go Through?
Should I Consolidate and How?
Does a Prior Refinance Affect This One?
Why is This Refinance 'Cash-Out'?
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Should You Rescind Your Refinance?
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Refinancing
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- What Goes Into the Refinance Decision
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- Should I Follow the APR on a Cash-Out Refinance
- Does Refinancing at a Higher Rate Ever Make Sense
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Current Mortgage Rates*
Loan Type National Average |
|
| 30-yr. fixed | 6.38% |
| 30-yr. fixed jumbo | 7.00% |
| 15-yr. fixed | 5.88% |
| 15-yr. fixed jumbo | 6.50% |
| 7/1 ARM | 6.25% |
| 5/1 ARM | 6.00% |
| 3/1 ARM | 5.88% |
| 1-yr. ARM | 6.00% |
| 1-yr. LIBOR ARM | 5.50% |
| 10/1 ARM | 7.88% |
*Mortgage Rates Updated: 09/04/2008