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Should You Refinance Your Home Mortgage?
Housing costs are one of the largest components of most household budgets. With interest rates changing so frequently, you should periodically determine whether refinancing at current interest rates would save you money.
To determine whether you should consider refinancing, you need to compare the costs of obtaining a new mortgage with the savings you could enjoy with a reduced interest rate. You may also want to consider refinancing to a different type of mortgage, such as switching from a 5-year balloon to a 15-year fixed rate mortgage.
Here is an example and a worksheet that will help you determine if refinancing makes sense for you. You may want to print this article and use the worksheets. Rick and Carol have a home they bought 3 years ago for $300,000 and they have 5 years remaining on balloon mortgage of $200,000 with an interest rate of 6.25%. Their monthly payments are $1231.43. They intend to live in their home for several years and would like to lock in a 30-year mortgage with a 4.375% fixed rate.
In this example, Rick and Carol would save over $2800 annually in mortgage payments and lock in a 30-year fixed rate mortgage. Over the course of the mortgage they would pay about $83,000 less in total interest.
There is a mortgage refinancing calculator as part of this website that can make the calculation easier. There is also a mortgage payment calculator that will calculate your monthly mortgage payment for any size mortgage with any interest rate.
Under the new tax law, mortgage interest is tax deductible up to a $750,000 balance if you itemize your deductions on your tax return. Consult your tax advisor to see how this may apply to your situation.