When is the Right Time for Florida Home Mortgage Refinancing?

We don’t mean to place excess pressure on readers, but it may be the most important financial decision you ever make: when is the right time to consider Florida mortgage refinancing?

You may have read how numerous borrowers with adjustable rate home loans will suffer from interest rate resets if they don’t take this step. Are you included in this group? If so, you need to determine your break-even point. In other words, you need to know how long it will take for the money you save with your new Florida mortgage to exceed the costs of acquiring it.

Here’s a simple formula for calculating your break-even point:

Step 1: Subtract your new monthly payment from your old monthly payment to calculate the savings each month.

For example:
You have $170,000 of principal remaining on a 30-year fixed-rate mortgage you took out 5 years ago at 8 percent: Your current monthly payment is $1,312.

If you refinanced to a new 30-year Florida mortgage at 6.5 percent: Your new monthly payment would be $1,075. It was arrived at via the following: $1,312 (Old monthly payment) - $1,075 (New monthly payment) = $237 (Savings per month)

Step 2: Divide the closing costs of your new loan by the monthly savings to calculate your break-even point.

For example: If the closing costs are $4,800: $4,800 ÷ $237 = 20.25 months

Therefore, according to this formula, you start to save on your Florida mortgage refinancing in less than 21 months.

Other factors to consider:

1. The effect of extending your term
The problem with the above calculation is that it ignores an important factor. Your new monthly payment isn’t just reduced because of a lower interest rate; it’s also lower because you’ve effectively extended the term of your Flordida home loan.

If you’ve had a 30-year mortgage for five years, then you have 25 years left to pay it off completely. But if you refinance to a new 30-year Florida home mortgage loan, you’ll face five extra years of monthly payments, which the formula ignores.

2. If you choose a shorter-term loan
Now imagine you’re in the same situation as above, but this time after five years you decide to refinance to a 15-year mortgage in order to pay off your home more quickly. The new monthly payment at 6.5 percent would be $169 higher, so the old break-even formula doesn’t apply.

Over the life of the loan, however, the new loan will save you a whopping $127,000 in interest. Why? Because more of your money is going to pay down the principal, and you will own your home 10 years sooner!

In short, the rule of thumb for calculating your break-even point is only accurate when the term of your new loan is very close to the term remaining on your old one - and that’s often not the case.

There are, of course, other things to consider when you refinance, too, including taxes and private mortgage insurance. Complete the FREE FORM above and speak with a broker to learn what’s best for you and your family. There are no obligations attached to the process.