Mortgage refinancing to reduce monthly housing expenses

Refinancing your mortgage to get a lower interest rate is one of the best ways to reduce your monthly home expenses. In most cases when you refinance your mortgage, you are going to lower your interest rate, which is going to result in a lower mortgage payment. Refinancing your mortgage can save you hundreds of dollars a month, however, sometimes refinancing to a lower rate will not save you any money.

Before you decide to refinance you should look into seeing if it is in your best interest by using a refinance calculator to calculate the monthly payment and net interest savings. The calculator will also help you figure out how any months it will take you to break even on the closing costs. To use the refinance calculator you will need to know the principal balance of your mortgage, which you can get by calling your mortgage lender and asking for the current payoff amount. You will also need to know your monthly payment amount, if you have an escrow account do not include it in the monthly payment amount, for the refinance calculator you only want to include your principal and interest payments for the month. You will also want to know the current interest rate and the interest rate that you will be refinancing too. You will also need to enter in the number of years that you will be refinancing for and how much you will be paying in closing costs. Once you have entered in all of that information you just need to click the calculate button and the computer will give you all of the information that you need to determine if refinancing is going to be a savings for you.

For example, the principal balance for your mortgage is $150,000, the amount of your principal and interest payment is $1,000, your current interest rate is 6.5% and you are refinancing to a 5% interest rate. With the refinance, you are refinancing for 30 years, and you are paying $3,000 in closing costs, all you have to do is enter this information into the calculator to get your savings. In this case, your new monthly payment would be $805.23, which is a monthly savings of $194.76. With the amount of closing costs that you had to pay it would take you 15 months to break even, which if you think about is short-term compared to how long it will take you to pay off your mortgage. Under your current monthly payment plan you will end up paying $159,878 in interest, if you refinance you will only pay $139,883 in interest, which is a savings of $19,994. Therefore, after paying the closing costs you will see a net savings of $16,994. This savings will only be beneficial to you if you plan to stay in your current home for more than 15 months because you will need to stay in the home for 15 months just to break even on the closing costs, meaning you will not see any savings until after the first fifteen months.

Obviously how much you can save each month is going to depend on the interest rate that you currently have, the higher the interest rate the more money that you will be saving. Closing costs can also determine how much money you will be saving, the fewer amounts that you pay in closing costs the more money that you will save in the end. On average, people can save $100 a month when the refinance their mortgage to a lower interest rate. This savings can then be put directly into your savings account to help build your cash reserve.