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Refinance Payback Period

Calculating your refinance payback period is one of the most important calculations you can make when deciding if a refinance makes sense for you in your specific situation. As always, please email me with any questions about a refinance payback period

To calculate your refinance payback period, you will want to determine your current interest rate and the lowest rate available to you without paying points or origination fees ( the reason for avoiding these fees will become clear soon). Determine your current Principal and Interest payment plus any Mortgage Insurance payment required by your existing loan. Your Tax and Insurance escrow amounts will not change so we ignore them in this calculation. Determine your new Principal and Interest payment based on the new rate and the cost of the transaction from a Good Faith Estimate of Closing Costs.. Subtract your proposed payment from your current payment to find your monthly savings. Divide the monthly savings into your total costs from the Good Faith. The result of the calculation is the number of months needed to recapture your investment in the mortgage, or refinance payback period. If you plan to be in the home for a period longer than the refinance payback period, the transaction makes sense. If not, and there are no other compelling reason (such as debt consolidation) then I would question the logic of the transaction. 

However, the calculation is meaningless if you intend to use a "No Cost Refinance" strategy with me paying your closing costs for you. Other than your cost to establish new escrow accounts, you have no cost so your payback period is immediate.

As you can see, you will really want to keep the costs of the transaction as low as possible to shorten the payback period so you can begin enjoying the benefits of the lower payment. The other important point illustrated is the importance of obtaining a Good Faith Estimate of Closing Costs before you apply for the loan. Completing the prequalification form will give me the information needed to create a Good Faith covering your specific situation. I can generally email a Good Faith back to you within 24 hours with no cost or obligation to you.

As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your consumer and mortgage debt is structured today can have a life changing effect in the years to come.  Read more about this free, no obligation service.

R%efinance Payback PeriodPrequalify for your Mortgage Refinance.

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