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Refinance Your Home Mortgage

Now or Never

2/16/2022 | Harvey Mackler, Banking on Harvey

In case you have not noticed, mortgage rates have been creeping up from their historical low points.  There is still time to refinance (or purchase a home), but don’t wait too long.  Let’s look at the rates.

The current 30 year fixed rate (the industry standard) is in the low 4% range.   If you are eligible for the best rate, it is locked for the entire 30 year period.  Lenders may charge points, and we can look at their effective cost over the life of the mortgage.

Rates were as low as the high 2% range early in the pandemic.  But from a historical perspective, the current low 4% is still low on the interest rate spectrum.  (Those of us who borrowed in the early 80’s remember double-digit rates!)

When rates are relatively low, avoid ARM’s (adjustable rate mortgages).  They are a fool’s bet UNLESS you know that you will be refinancing and/or selling in two to three years.

So let’s say you have a $250,000 home with a $150,000 mortgage.  If you have excellent credit, your monthly payment would be under $740.00 before real estate taxes and insurance.  If your current rate is 6%, your monthly payment is almost $900.00.  The total savings is $57,600 over the 30 years.

But let’s assume that you were savvy enough to get a lower rate in the past few years.  It would not make sense to refinance the mortgage just to save on the monthly payment.  You may have a lot of equity in your home.  Use the above example, but your mortgage balance is only $100,000.

You could use the $50,000 additional available to you for a variety of good reasons.  You could borrow under a home equity line of credit (HELOC), but typically they carry variable interest rates.  Your interest cost on this portion of the loan could be prohibitive.

Now refinance the entire mortgage at $150,000 with the ability to take out $50,000.   Your monthly payment is now the low 4% for the entire 30 years.

And a little trick to save even more money. Under the law, there are no prepayment penalties for conventional mortgages.  You can have a mortgage with a 30 year term, and if you pay something extra each month, you can cut the term (and your interest costs) meaningfully.  The beauty of this approach is that if you do not have extra cash this month, only pay the monthly loan amount.  (You must always pay that amount.)

For example, our $150,000 mortgage above, monthly payment of $740.00, pays in full in the 30th year.  An additional $100.00 per month reduces the effective term to 23 years.

Take control of your interest costs!


A 1975 graduate of the Wharton School at the University of Pennsylvania, Harvey enjoyed a 20+ year career in commercial banking, exercising his “golden parachute” in 1996.  In his volunteer life, he is a past chair of the Small Business Banking Unit of the American Bankers Association, Easter Seal Society of New Jersey, the SAAGNY Foundation, PPAF EXPO, and Supplier Committee of PPAI.  He is also a past President of PPAF.  PPAI awarded him the H. Ted Olson Humanitarian Award in 2013.
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