You Should If You Can

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Mortgage interest rates are unbelievable.

Way back when (1978) I bought a home and financed my home at an interest rate of 9.25 percent and thought I hit the jackpot because that rate was 1/4 percent below the market rate.

If I remember correctly, we financed approximately $70,000 which would equate to a principal and interest (P&I) payment of $575.87.

Today, that same $70,000 can be financed as low as 4.59 percent on a 30-year mortgage and even less on a 15-year term. Today’s interest rates would have reduced my 1978 payment to $358.43 which is a monthly savings of $217.44. Conversely, I could keep my 1978 payment of $575.87 and finance $113,655 at today’s rates.

If you are not upside down on your home, you may want to look at refinancing or modifying your mortgage.

For example, if you owe $200,000 and are at a 6 percent interest rate, with good credit you could lower your P&I payment from approximately $1,200 a month to $1,024 a month. Not bad!

You may also have the option of shrinking the term of your loan. If you wanted to pay approximately $265 a month more, you could reduce your loan term from 30 to 15 years.

There are even more options available. One lender is quoting a rate of 2.96 percent for a 5/1 ARM.

What that means is that the interest rate will be fixed for five years and then adjust to the market.

If you do not think you will keep your home more than five years, this is an excellent option. A $200,000 loan would have approximate P&I fixed payments for five years of only $839.

The above calculations were based on conventional loans with a 20 percent equity position or down payment and were approximations.

For a review of actual savings you should contact a licensed mortgage adviser as individual circumstances may have an effect on the interest rate they offer.

Lenders will also charge you a fee to refinance your home plus the cost of appraisals, escrow fees, etc. ... which will have an effect on the annual percentage rate of interest that you pay.

When comparing loan offers, it is wise to look beyond the interest rate that is quoted and to look at the Annual Percentage Rate which reflects not only the interest rate but the costs involved in obtaining the loan.

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