As mortgage rates have continued to fall over the last year we have seen an increase in refinancing. However, why are so many people looking for the equity in their home? Is it to save money now or save money in the future?
I would suggest that it depends on your individual needs. Without any doubt with the low prime rate and low fixed rates you can save money by refinancing. We can structure deals to save your alot of money.
You may have heard of cancellation penalties and they can be quite costly but they will be built into your new mortgage and often the new interest rate can still save you money. Here is how to calculate the penalty. The penalty will be the higher of a 3 month interest penalty or the interest rate differential (IRD).
To estimate the Three Months’ Interest Costs:
|Step 1:- (A)||amount you want to prepay|
|Step 2:- (B)||the Interest Rate under your Mortgage expressed as a decimal (for example, 2.75% = .0275)|
|Step 3:- (C)||A x B = C|
|Step 4:- (D)||C ÷ 4 = D, D is your estimated Three Months’ Interest Costs|
To estimate the Interest Rate Differential Amount:
|Step 1:- (A)||the current interest rate under your Mortgage expressed as a decimal (for example, 2.75% = .0275)|
|Step 2:- (B)||the current interest rate that we can now charge for a mortgage term offered by us with the term closest to your remaining term. The interest rate will be our posted interest rate for the term minus the most recent discount you received|
|Step 3:- (C)||A – B = C, which is the difference between your current interest rate and the interest rate in B above (write C as a decimal)|
|Step 4:- (D)||amount you want to prepay|
|Step 5:- (E)||number of months for the remaining term of your Mortgage|
|Step 6:- (F)||(C x D x E) ÷ 12 = F, F is your estimated Interest Rate Differential Amount|
Now the simple way to determine your penalty for breaking your mortgage will be to call your existing lender and ask, but there is a tip to keep in mind. Most mortgages have a 15% prepay privilege attached to them. What that means is that you can pay up to 15% of the original mortgage amount before you close your mortgage. By speaking with your Mortgage Agent and Real Estate Lawyer they can structure the closing to actually save you additional money by simply applying the 15% before paying out your existing mortgage.
With mortgage rates being at all time lows, there may never be a better time to refinance your mortgage and take advantage of cash saving measures. Whether you would like to increase your monthly cash flow or pay off your mortgage faster a new mortgage can help you meet your goal.