MONEY MATTERS

Refinance Readiness: Now May Be Your Time

BY DARIUS TOSTON

The current economic environment is rapidly improving. One of the brightest spots is an unprecedented opportunity that many homeowners have to refinance their mortgages and save money.

It all starts with interest rates, which are now at historic lows. This favorable interest rate environment has caught the attention of homeowners eager to save money by reducing their mortgage payment — typically, the largest monthly household expense.

From a historical perspective, mortgage rates are very low. About a decade ago, 30-year, fixed-rate mortgages were above 8 percent; in the 1990s, buyers had to deal with rates higher than 10 percent. These days, with historically low rates, refinancing may be a terrific option for you.

A refinance transaction involves repayment of existing real estate debt from the proceeds of a new mortgage that involves the same borrower(s) and property. Even though a drop in interest rates makes it seem like an easy decision, borrowers shouldn’t consider any single variable on its own. Homeowners should consider how long they plan to stay in the house, the cost to refinance their mortgage and how refinancing could support their overall financial goals.

If you plan to stay in your home for several years, the benefits gained from lower monthly payments might make financial sense. Lowering your interest rate by just one percent can make a substantial difference. Homeowners could benefit from refinancing in several ways:

• Reducing the term of a loan could significantly lower interest-rate expense. This could allow the borrower to pay off more principal each month, thereby reducing the interest paid over the life of the loan.

• Lowering the monthly payment can free up cash for other expenses and/or allow you to save money to reach other financial goals.

• Homeowners with adjustable-rate mortgages can switch to a fixed rate and reduce the risk of increased monthly payments if interest rates rise.

Knowing your “break-even” point can help determine what refinancing option is right for you. To find it, divide the total cost of a new loan (points and closing costs) by the net monthly payment reduction and learn how many months it will take to pay off the costs of refinancing.

And, remember, low rates are only part of refinancing a mortgage. Choose a responsible lender that will take the time to find a refinancing option for you. As always, homeowners should make their financial decisions based on their budgets, needs and future plans.

Darius Toston is the Diverse Segments Consultant for Wells Fargo Home Mortgage in Nevada. For more information about Wells Fargo Home Mortgage, visit us on the web at www.wellsfargohomemortgage.com or visit a nearby Wells Fargo branch.