IF You are one of the boatload of people who still have not refinanced the high interest mortgage you took out in the early 1980s, this may be the time to switch to one that lets you lower your monthly payments.
You may be carrying a mortgage with rates as hefty as 14% or nore, perhaps because you have just not bothered to look around to
see what's available. In mid 1989, although lenders were offering a bewildering array of loan choices, they were also doing away with sharply discounted "teaser" rates on ARMs. So swapping a peakinterest loan may or may not be a smart move. Everything depends on your up front costs and how long you plan to keep your home.
Looked at over the full term of the loan, a saving of even one point in the interest rate on a 30 year, $ 100,000 mortgage saves you nearly $13,000 in total payments. But unless you can reduce your mortgage interest rate by three points or so, it is probably not worth the hassle and the immediate costs. For example, if there is a prepayment penalty clause in your mortgage, you will have to pay plenty to get out of the loan agreement as much as 3% of the unpaid balance. That's on top of the usual costs of refinancing, which often can be almost as much as the closing costs on the original mortgage.
So check carefully to see what these real costs will be, after you figure in your income tax deductions for them. Then compare them with the immediate and long term savings you can expect by refinancing. You also should be planning to live in your house for at least three more years. Otherwise ' the costs most likely will exceed the amount that you would save in monthly payments.
One quick way to see how long it will require for refinancing to pay off is to divide your closing costs by the reduction on your monthly payment. T he result will equal the number of months it will take you to break even. For example, if your closing costs are $6,000 and your monthly saving is $150, you will need to keep your home 40 months to break even (6,000 divided by 150 equals 40).
