Should You Refinance a Loan?

Home LoanIn the middle of your mortgage payment, you may venture into refinancing. This way, your interest rate goes down, giving you a good amount of savings.

With a $200,000 fixed-rate credit at originally 6.0% interest rate, you may only be facing 5.5% when you refinance. At 6.0%, you will pay an interest of $1,199, while at 5.5%, it will only be $1,136. A monthly saving of $6 may seem small, but this increases to $756 in a year and totals $7,560 after 10 years.

Provincialbank.com, a bank offering refinancing in Lakeville says you should only consider refinancing if you think that it will end up being a better deal in the long run.

To decide, you can take a look at the recent happenings in the world of refinancing.

Refinancing Surge in Lakeville, Minnesota in 2012

In October 2012, the city’s school region got a $43.9 million refinancing deal that would lead to an $11 million saving over the next nine years. Since the interest rates were continuously dropping during that time, the cutback was $1 million more than what was projected. The credit bonds were within the 5% range, while the refinance option was only at 1.49%.

In line with this, a financial consulting firm closed 14 refinancing contracts from October to December 2011. But, in 2012, it handled 16 in October alone. From this refinance option, an owner of a $200,000 house will likely get back $34 yearly in property dues over the next nine years.

At the start of 2012, this refinancing offer also gave the Rosemount-Apple Valley-Eagan school area a $3.75 million discount. West St. Paul got back $5.5 million.

Moreover, with a rate of less than 1%, the Association of Metropolitan School Districts was able to loan around $360 million with an estimated cost of only $2 million. If the rate was at 5% or 6%, school areas would have spent $10 million on a $360 million loan.

Reconsiderations

You should refinance at the closing term of your mortgage because you will simply start over with your amortization. In this process, your monthly dues will go to interest fees instead of adding up to your equity.

At the same time, you should negotiate with your lender to set aside the down payment fine of your mortgage. Paying this penalty will affect the balance of your refinancing expenses and projected savings per month.

Moreover, when moving to another place is part of your plan, refinancing is not wise since you are not sure whether you will save or lose your extra budget.

Refinancing is a good option when the times are favorable and when you know what you’re dealing with. Otherwise, consulting a professional about it first would be helpful.