Refinance Your Primary Mortgage

Refinancing your mortgage will typically be the best option, as it can save you hundreds of dollars per month if you’re refinancing from a high interest rate to a lower rate. Let’s look at an example, lets figure that I took out a $250,000 mortgage loan 5 years ago with an interest rate of 7.25%. At this loan amount and this interest rate, my monthly payment will have been approximately $1,705.00 per month. As of the time of this post, I’ve seen interest rates for 30 year mortgages as low as 5.75% – the interest rate will depend on your lender, your credit score, payment history, etc. so you’ll have to talk to a mortgage broker prior to getting a firm rate quote, but for the interest of our example, we’re going to figure that we can get a loan at a rate of 5.75%. For simplicity sake, lets compare a $250,000 loan at 5.75%. At this interest rate, our monthly mortgage payment will be approximately $1,459.00. This is a savings of $259 per month. A couple things to remember are that:

1. In this example, we figured that we’ve had our original loan for 5 years. If that were the case, we wouldn’t still need a $250,000 loan, we’d actually only need a loan for about $235,950 (let’s figure $236,000 for simplicity). Plugging that amount into a payment calculator will yield a monthly payment of $1,377.00 per month, yeilding a savings of $358 per month.
2. You’ll have to take into account loan processing fees. Typically you’ll be paying processing fees, points, etc. which could end up being a couple thousand dollars. When I refinanced, I wrote a check for all of these fees ($2,900 in my case), however I believe that you can have these fees rolled into the cost of your new payment.

Depending on your situation, your current mortgage interest rate verse current market interest rates, closing costs and actual savings, it is always best to consult a trusted professional to see if refinancing would be a good choice for you and your situation, however as you can see from the above example, refinancing offers a great way to decrease you monthly payment.

Reassess Your Property Taxes

This option will not necessarily save you as much money, but nonetheless can definitely be a money saving option. If you bought your house in the last 3-6 years, chances are that you paid more for you house than it is worth now… especially if you live in California. Let’s take a homeowner in California for this example, and lets figure, for simplicity, that this homeowner bought a home 5 years ago for $500,000 and property taxes are currently 1%. This will mean annual property taxes of $5,000 per year, or about $417 per month. Lets now figure that this home is now only worth $350,000. If this home were purchased at this amount, property taxes would be only $3,500 per year or $292 per month. Should the homeowner get their property taxes re-assessed and adjusted, they’d be saving approximately $125 per month.

So how do you go about getting your property taxes adjusted? There are many private companies out there that assess property values and adjust your home value with the county assessors office to lower your monthly/annual property tax payments.

Again, I recommend consulting a trusted professional before trying to have your property taxes adjusted because in some cases, property values will have increased, resulting in higher property taxes, in these cases, it obviously would make more sense to keep the current property tax and assessed home value in place.

1. Are current rates lower than your existing mortgage rate?

This should be a no-brainer, but you’d be surprised how many people actually refinance just to pull some extra equity out of their homes. Another thing that should be considered when looking at the new rate is whether the amount you have to pay in closing costs will offset the savings that your new, lower rate will get you. If your closing costs are too high, it may be best to just keep your existing mortgage.

2. Where does the break-even point turn into savings?

As mentioned above, the closing cost will many times eat into your savings, but if you’re able to lower the rate enough, how long will it take to recoup the closing cost? If the closing cost will be recouped by savings in less than a year, refinancing is probably a good option, however if it will take you 3-5 years or longer to recoup your closing costs with mortgage savings, you should probably consider a few things:

• How long do you plan to stay in your home?
• Are there other lenders who will offer better incentives?

3. Shop around prior to selecting a refinancing option.

There isn’t just one lender out there. Make sure you shop around and have a good idea of current rates prior to selecting your refinancing option. You wouldn’t go buy a car without doing your research first, would you? In most cases, no… you’ll want to first know what other people are paying for that car, and what financing options and incentives are available.

4. Get a rate lock

This will give you time to shop around while knowing that you have a specified rate in mind. Don’t let this be verbal, get a rate lock in writing. This will specify the length of time that you have to secure the loan at a specified rate, as well as other information about the loan.

5. Get a good faith estimate

Typically, lenders will provide you with a good faith estimate after you have filled out your loan application paperwork. Good faith estimates disclose all costs and fees, and these will allow you to compare the loan to your current loan, and other potential loans.