Loan Modification

Is It Really A Good Time to Refinance?

By Eugene S. Melchionne, Connecticut Consumer Attorne

Or stated another way; “Does a rate reduction help your finances?”  Not all refinances are a good idea.  Even a refinance solely to reduce your interest rate can be a losing proposition.  You have to consider how long it will take to recover the cost of a refinance.  A small sacrifice now can mean big money later.

Generally, it is not a smart to draw cash out of your home to pay bills.  See “A House is Not a Piggy Bank” on the Bankruptcy Law Network.  In these days of falling values, we probably won’t have to worry about that for a while.  Even if you are not drawing cash out of your home, you can still make mistakes that will affect your finances for a

As with every important financial decision, you must do the math.  An average refinance closing for a $200,000.00 loan costs about $3,000.00, not including locally specific items such as taxes, transfer fees, certain kinds of insurance or homeowners association fees.  Even if your loan payment is reduced by $125.00 a month, you will have to make payments for two years before you will start to realize realize any real savings.

Consider instead, using a refinance to shorten the term of your loan.  A $200.000 loan at 7% reduced to a 4% rate, but also reduced in term from 30 years to 15 years will increase the payment about $148.00 a month.  However, that increase will cut the loan term in half and save you over $212,000.00 in payments!!

Full post as published by Mortgage Law Network on May 24, 2009 (boomark / email).