When is the Best Time to Refinance a Mortgage?

So the question that we're asking is when is the best time that you should refinance your mortgage and that answer kind of depends on a couple different factors and that's exactly what we're going to be going over in this video because right now rates are only about 3.6 percent which is extremely low so honestly if you do have a rate of about four percent or higher it would be worth considering refinancing but there are a couple kinks that we definitely need to cover so that's what we're going to be going over. I'll go over all the pros and the cons when it comes to refinancing your mortgage and then on top of that I'm also going to show you how to do the math for yourself using a loan calculator so that you can tell when everything's said and done if it's going to be a good value for you or if it's not going to be because a lot of the time when you run the numbers you'll actually find that the refinance is not the best value at the time that you want to be doing it and that's exactly why we want to be doing the math so that you can tell if it's a good value or if it's not just depending upon your situation. So when it comes to refinancing a house I really wish that it was as easy as refinancing a car but it's not it's quite a bit more complicated it takes a lot longer and then on top of that you're always going to have closing costs associated with the loan and they're usually going to be about one to three percent of the total loan amount so just keep that in mind. So typically on a $300,000 mortgage you can expect to pay about three to nine thousand dollars in closing costs but in my experience I found that you're usually going to be paying on the lower end so usually about three to five thousand dollars on that same number but that's in my experience and that can all change based on the lender that you're going through and it can also change based on if you're buying down the mortgage rate or anything like that. So really the only way to justify doing a refinance is if you can pay back those closing costs within just a couple years on the money that you're going to save on interest and that's really the only way that you want to be doing it because otherwise it's not really a good value. So if you paid about three thousand dollars in closing costs then you definitely want to recoup that money within just a couple years on your interest savings otherwise the refinance isn't quite worth it and then on top of that if you're planning on moving within about a year I definitely wouldn't be refinancing because you're never going to make your money back by the time you move. And if you do decide to refinance your home I would highly advise that you get multiple bids from different banks because if you're negotiating with them they're going to be fighting for your business and a lot of the time you can save a lot of money on closing costs or you can get a better rate just because you're fighting to get the best option available for you. And when it comes to whether or not a refinance is going to be worth it for you or not it all depends on the math side of things and so this part of the video I'm going to show you guys how to do the math using what's called a loan calculator and you can look these up online or you can get them on an app store. They pretty much all work the same they're going to be free they're going to be full of ads but they are going to get the job done and I'm going to show you how to do that right now. And if you guys are liking this video can you please just give it a big thumbs up that way I can tell if you guys are liking this type of content or if you're not. Thank you very much and now on to the loan calculator. Okay so once you're inside the loan calculator the first thing we're going to need to do is you have to think back and remember how much your original mortgage was and this doesn't need to be perfectly accurate but it is a good way to tell how we're going to be as far as refinance goes. So you can either look this up online or you can call your bank find out exactly what it is or if you can just remember a ballpark that's fine too we just want to be close here. So what we're going to do is we're just going to assume that your original mortgage was $330,000 so let's plug that in right here we're just going to do $330,000 and then let's pretend also that and we were on a 30-year loan. So right now we've got a $330,000 mortgage at 5% over 30 years we're just going to hit calculate and that is going to give us our monthly payment. Now that is what we're going to want to write down $1,771 on the $330,000. Now in order to do the next part of this let's pretend that you've had your mortgage for three years so that's 36 months. What we're going to want to do is go inside this schedule and just make sure that your loan calculator has a schedule built into it because if it doesn't then we're not going to be able to do this math right. So just click on schedule down here and this is going to tell you exactly how much principal interest the balance all of that stuff through the entire amateurization schedule of the entire loan but we are just going to scroll until we get to 36 months. Okay now right here you can see that we are paying $459 in principal every month and then $1,312 in interest and then the new loan amount is $314,633. So we're going to want to write down all three of these numbers so that when we do the new math on the new refinance everything is going to make sense. Now from here we're just going to go back to the input screen on the main part of everything and we're going to input the new numbers. So the new loan came to $314,633 and then let's assume that you had another $4,000 in closing costs so just plug that new number in right here. So we're going to have $318,633 oh sorry $318,633 and that is going to be our new loan amount and then let's also pretend that with the refinance you're going to get a better rate. So let's plug in four percent here then we're going to start the loan over at 30 years and we're going to calculate. So right here we can see that we have a new monthly payment of $1,521. Okay so that's obviously better than it used to be and from here just go back into the schedule and make sure that you're looking at month one. So obviously we need to go to the top here and for month one we are paying $1,062 in interest and $459 in principal every month. So right there you can tell that we're already doing better than we used to be even though we started the loan out from the very beginning because your old loan was at 27 years now we're starting over at 30 but this is obviously a better number to go off of and so now we can just do some basic math and find out if that amount of interest that we're paying every year or every month is going to pay itself off for the difference in the closing costs that we had to pay. And that's exactly how you can figure out if a refinance is going to be good for or if it's not just based on this basic math just remember to try to get your original loan amount and how long you've been running it so that you can get some more accurate numbers and then just base it off of the new numbers and some basic closing costs and then you can see if it's going to be worth it or not. Now hopefully that made sense with the math and I don't mean to over complicate you guys but it really is pretty simple it just might seem a little bit intimidating with those numbers and what they all mean but once you fiddle around with those apps it will start to make sense. And I also want to mention right here that a lot of lenders will actually let you go with a higher rate for lower closing costs so a lot of the time they'll lower your origination fee because you're going with a higher rate and that might not sound good but when you actually run the numbers it can make a lot of sense financially because the last house that I refinanced I actually went with a higher rate and it was going to take seven years before that wasn't a good idea based on the amortization math that I ran using the same loan calculator. And also keep in mind that if your house has gone up in value then when you refinance your home and you get it reappraised if that appraisal comes in higher then you're technically going to have more equity in your house and that can be a good thing because if you're currently paying mortgage insurance or what's known as PMI then you can actually get rid of that if you have 20% down on your house and a lot of the time that 20% can be perceived as your new appraisal amount so just keep that in mind if your house appraises for more than it used to then you can technically get out of PMI just depending upon those numbers. So when it really comes down to when is the best time to refinance your home it all depends on the math so you are going to have to plug in those numbers and realize if you're going to make that up in interest savings over just a couple years versus what the closing costs are and if it is going to be worth it then definitely go for a refinance because you are going to save a lot of money over time just not in the short future meaning a couple years. Now if you just found this channel I'm Jason with Thomas Finance and I make a lot of videos on different topics that will give your life and your finances more value so if you do have an interest in this type of content feel free to subscribe but thank you guys for watching have a great day.