MORTGAGE refinance is basically a new loan to repay an existing mortgage using the same house as collateral for the new loan. Mortgage refinance is preferred when interest rates fall below the rate at which the original loan was taken, so that the borrower can take advantage of the lower rate.
Since property prices in California are among the highest in the United States, it makes tremendous sense to consider mortgage refinance in this state (this however does not take away from the case for mortgage refinance in the other states too). Calculating mortgage refinance is not for the lay person.
It requires knowledge of the financial market, foresight on how interest rates will move in the coming months, government policies that can influence the economy, and so on.
It is not possible for everyone to master this subject overnight; so the best recourse is to use online mortgage refinance calculators. In the report, we shall look at the online calculator provided by CNN at http://.cgi.money.cnn.com.
This calculator asks you the following questions, which you must answer correctly
PART 1 : Current mortgage
- What monthly payment you are making on your current mortgage.
- What is your current interest rate.
- How many years and months are left on your current mortgage.
- How much do you plan to refinance.
- How many years you plan to remain in this house.
PART 2 : Refinance options
In this part, you are given three options, named 'Loan 1', 'Loan 2', and 'Loan 3'. You don't have to enter information for each Loan option, but is better if you do so because that will enable you to compare the refinance options you have.
For each loan option, you have to answer the following communications:
- Interest rate that you want.
- Term of the loan you want (i.e., how many years).
- Points (i.e., costs that need to be paid to a lender in order to receive mortgage financing under the specified terms. A point is a percentage of the loan amount (one point = one percent of the loan). One point on a $100,000 loan would be $1,000. You may enter 2, 1, or 0).
- Other costs that you will incur (e.g., legal and bank fees, appraisal costs, taxes, etc.).
PART 3 : Results
Once you have entered the above details under each of the Loan options, press the 'Compare Loans" button. The screen will now change; scroll down the table you see (it contains all the information you entered in the above two parts) to the part named 'Results'. The Results will be divided into the following items for each Loan option for which you provided details in Part 2 above.
The results will tell you the following :
- Your upfront cost for the refinance.
- The monthly payment you have to make.
- Monthly savings vs current loan.
- Break-even point in terms of years and months.
- Total loan costs vs current loan.
Note that the calculator described in this article is not the only one you can use; there are several similar refinance calculators, such as at :
- http://www.bankrate.com/brm/calc_vml/refi/refi.asp (here you can also locate mortgage lenders in California by entering the ZIP code).
- http://www.locallender.info/consumer-banking/mortgage/refinance-calculator.asp
- http://www.erate.com/refinance_mortgage_calculator.htm
- http://www.aba.com/aba/cgi-bin/refinanceNT.pl
What next?
Remember that calculators provide you only with approximations and that the actual terms may be slightly higher or lower. Different calculators may ask for slightly different sets of information, but they all let you know whether it makes sense to go for a mortgage refinance or continue with the existing mortgage.
Don't assume that refinance is always a good proposition; so online calculators are always a good starting point.
