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What the Average Homeowner Can Save

The cost benefit of a refinance is not as simple to understand as buying the average product.  This is because loans can be structured in so many different ways.  Refinances can be structured so that all costs are covered by the lender, costs can be rolled in to the loan, or the borrower can pay the costs themselves.  Then there are all the different categories you have to look at monthly payments, closing costs and how long is left on the loan.  Ultimately the key to getting the correct refinance is having a lender who understands the goal of the borrower, puts together a loan that matches the goals of the borrower and a clear explanation of the differences in the borrowers current loan and future loan.

An Example

According to Zillow the average home value in San Diego is $360,900.  If a person owning this home were 2 years into a 30 year fixed loan with a balance of $260k  at 5%.    The owner stated they would live in the house for at least 5 more years probably longer, had no money to pay any closing costs but wanted the lowest payment possible while staying in a 30 year fixed.   This is what that persons situation would look like.

 

Interest Rate Monthly Payment Years left Total amount left to be paid
Old Loan 5% $1,422.58 28 $483,602.20
New Loan 3.875% $1,246.13 30 $440,141.91

 

This person is looking at $176 in savings every month and $43460.29 over the life of the loan.  Initially their loan balance would be higher by the amount of the closing costs $4860 which is already included in the numbers above.  The increase in loan balance will be overcome by the savings after 2 years and 4 months well within the homeowners stated plan of being in the house at least five more years.  At this point it would be up to the homeowner to decide if $176 a month and over $43k over the the life of the loan is worth the time it takes to do the refinance.

Get in contact with us today to see how we can help you reach your  goals as a homeowner.