5:52 PM EST, December 8, 2011
It's the most expensive thing people will ever buy: a home. But so often people don't "stretch their dollar" when it comes to considering refinancing. It can save you hundreds of thousands of dollars over the course of the loan.
So, when should you refinance?
Ed Hensley is the Senior VP Mortgage Director at First Financial. He says, "The old rule of thumb was you needed a full one percent drop in the interest rate to make it worth your while to refinance. With lower closing cost and more options, that's not necessarily the case. Again, sitting down with a mortgage professional will help determine that."
You can also Google dozens of on-line mortgage calculators. They'll show you can pay about the same monthly mortgage. But with a lower interest rate such as going from 5 to 4%, you'll pay off your home in 5 to 10 fewer years, and still pay less on the total loan because of the lower rate.
So, what's the first step to getting those rates? Gather your financial information. Hensley simply calls it the 2-2-2 plan: your last 2 years W-2, last 2 pay stubs, last 2 bank statements.
Of course, banks admit, not everyone can get the rock bottom refinancing. You have to have a good credit score, or get it better. The first and best way to accomplish that is to fix your credit and possible credit errors. Paying off loans helps as well.
Don't forget, right now, it's not just about re-financing, but buying. There's a good supply of homes, and the so-called "affordability index" is at an all time high. Be prepared, know what you're looking for, have a plan, be pre-approved, a lot of times for today it's cheaper to buy a home than rent.
Hensley says, when buying a home, you also have the tax benefits, and the benefits of being part of a community.