Oakland CA mortgage brokers give great advice regarding refinancing home loans. Deciding whether you should refinance into a no closing cost refinance, a zero point home loan or a refinance with one point is a MAJOR decision that should not be taken lightly. The wrong decision can cost several thousand dollars over a three to five year period or tens of thousands over the life of the loan. The right mortgage advice is critical to avoid wasting thousands of dollars and years added to the life of your loan.
When considering which home loan interest rate to select, you must know your “Break Even” point. In other words you should calculate the payment difference between two or more interest rate choices. For example, should you refinance your $500,000 mortgage with a 4.375% 30 year fixed interest rate paying one point ($5,000), opt for a 4.625% interest rate with no points or refinance at 4.875% with no points or closing costs either out of pocket or added to your mortgage balance?
Typically, it is more advantageous to pay points or closing costs if you will keep the mortgage and/or property being financed for more than four or five years. If you think your may refinance or sell the property within five years you are typically better off with a low or no cost refinance.
In summary, if you decide to pay points, you have a 3-5 year time frame before you begin to recoup the initial cost of refinancing. If you refinance your mortgage, pay no points or closing costs, your typical savings period could last for up to four years. Every month thereafter you are probably losing money. Of course, if you are saving hundreds or thousands of dollars per month by consolidating other debts or refinancing to solve the myriads problems life presents it doesn’t really matter.
One word of caution: Do not wait too long to make up your mind since rates can and do change rapidly and the opportunity to lock in savings could be gone quickly. Just ask anyone that waited in December of 1993. Rates were 7% one day and went to 9.25% in THREE DAYS. If anyone could accurately predict rates they wouldn’t be trying to sell you a mortgage.