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 gonna 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 4% 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 gonna 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 gonna show you how to do the math for yourself using a loan

calculator so that you can tell when everything said and done if it's gonna

be a good value for you or if it's not gonna 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 up on 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 gonna have closing costs associated with the loan and they're

usually gonna be about 1 to 3% of the total loan amount so just keep that in

mind so typically on a $300,000 mortgage you can expect to pay about 3 to $9,000

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 gonna 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 $3,000 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 gonna 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 thanks because if you're negotiating

with them they're gonna 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 gonna be free they're gonna be full of ads but

they are gonna get the job done and I'm gonna 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 gonna 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 gonna be as

far as a 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 gonna do is

we're just gonna assume that your original mortgage was three hundred and

thirty thousand dollars so let's plug that in right here we're just gonna do

three hundred and thirty thousand dollars and then let's pretend also that

the interest rate was 5% back then and we were on a 30-year loan so right now

we've got a three hundred and thirty thousand dollar mortgage at five percent

over thirty years we're just gonna hit calculate and that is going to give us

our monthly payment now that is what we're gonna want to write down seventeen

hundred and seventy one dollars on the three hundred and thirty thousand 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 thirty six months what we're

gonna 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 to

balance all of that stuff through the entire amateur ization schedule of the

entire loan but we are just going to scroll until we get to thirty six months

okay now right you can see that we are paying 500 and

our sorry $459 in principle every month and then thirteen hundred and twelve

dollars in interest and then the new loan amount is 314 633 so we're gonna

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

gonna input the new numbers so the new loan came to three hundred fourteen

thousand six hundred and thirty three and then let's assume that you had

another $4,000 in closing costs so I just plug that new number in right here

so we're gonna have 318 633 oh sorry 3 1863 and that is going to be our new

loan amount and then let's also pretend that with the refinance you're gonna get

a better rate so let's plug in four percent here then we're gonna start the

loan over at 30 years and we're gonna calculate so right here we can see that

we have a new monthly payment of 1521 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 1062 an interest and 459 in principle 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 cost that we

had to pay and that's exactly how you can figure out if a refinance is going

to be good for you 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 overcomplicate 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 refinance I actually

went with a higher rate and it was gonna take seven years before that wasn't a

good idea based on the amateur ization 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 gonna 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 gonna have to plug in those numbers

and realize if you're gonna make that up in interest savings over just a couple

years versus what the closing costs are and if it is gonna be worth it then

definitely go for a refinance because you are gonna save a lot of money over

time just not in the short future meaning a couple of years now if you

just found this channel I'm Jason with honest finance and I make a lot of

videos on different topics that'll give your life and your finances more value

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but thank you guys for watching have a great day