Should I Refinance?
Reasons to Refinance Include:
Let’s look at each of these in more detail.
Lowering Payment: A mortgage payment can be lowered 4 ways:
Reducing the Interest Rate: To determine if a “rate reduction refinance” makes sense, use this
formula:
Cost of refinance
Divided by Monthly Savings
Equals # of Months to Breakeven
To break even on this type of refinance, keep the new mortgage for at least the number of months
needed to recoup the closing costs. Of course if breaking even is secondary to your primary goal of
improving monthly cash flow, in most cases the closing charges can be rolled into the new loan,
which at least gives you the ability to achieve your immediate objective of lowering your payment.
FYI- The old axiom of needing a 2% reduction from your present rate doesn't necessarily hold true
anymore. The average loan amount today is far greater than it used to be, so accordingly it takes a
smaller reduction in rate to save the same amount of money on a larger loan amount. Ultimately
it's up to you to decide what amount of monthly savings is worthwhile.
Reducing the Balance: Paying down the balance at closing provides a new mortgage payment that
will be lower, given that the same terms are in place. (e.g. rate & loan duration)
Increasing the Loan Duration: You can lower your monthly payment by increasing the loan
duration, for example, by refinancing a 15-year loan to a longer 30-year loan.
Taking an Interest-Only Mortgage: This type of loan program requires only that the interest be paid
each month. In other words, the loan balance will not decrease unless extra principal payments
are made voluntarily. Because no principal payment is required, an interest-only loan has lower
payments than a loan with a set duration (also known as an “amortization schedule”).
Reducing Loan Duration: Equity increases at a faster pace the shorter the loan duration. Another
benefit is the fact that shorter duration loans usually have lower interest rates than longer duration
loans. Monthly payments increase, however, due the extra principal being paid. If your goal is to
payoff your property faster and also save thousands of dollars in overall interest, a shorter duration
mortgage will do it. (You can also pay additional principal toward your existing mortgage and
accomplish the same thing without refinancing, saving the closing costs. But it requires a
disciplined approach, and rules out the opportunity to get a lower rate on a new mortgage.)
Consolidating Higher Rate, Non-Deductible Debt: You can put the equity in your home to use by
refinancing with “cash out” to pay off higher rate, non-deductible debt, saving money on interest
and also reducing your tax burden by increasing the amount of mortgage interest you can deduct
on your income tax return. There are limits on how much mortgage interest can be deducted, so
please consult your tax adviser.
Replacing an Adjustable Rate Mortgage (ARM) with a Fixed Rate Mortgage (FRM): Sometimes
homeowners take an ARM with an initial fixed period of 3, 5 or 7 years thinking that they will move
within that time, only to find that that the years have flown by and now a fixed rate would feel more
comfortable. If so, refinancing out of the ARM to a FRM (fixed rate mortgage) gives the peace of
mind from knowing your mortgage payment will no longer be subject to adjustment.
Other homeowners take out an ARM and are completely comfortable with the prospect of rate
adjustments at the time, but due to changes in their lives and the economy such as marriage,
having children, increased living expenses, or possible recession, now would prefer the stability of
a FRM (fixed rate mortgage).
Whatever the case, AmeriStar has FRM loan terms from 5-, 10-, 15-, 20-, 25-, and 30-years in
duration, all at competitive Fixed Rates.
Replacing a Fixed Rate Mortgage (FRM) with an Adjustable Rate Mortgage (ARM): Let's say
you've been in your home for 5 years, and know for certain that you will not be there for more than 5
more, and have had a fixed rate mortgage. In this instance you could consider a 5/1 ARM provided
it has a lower rate than your current fixed rate mortgage. Doing so can save you thousands of
dollars in interest over the next 5 years. AmeriStar also has 1-, 3-, 7-, and 10-year ARMs for your
consideration.
Taking Cash Out: You can use the equity in your home for large, longer-term purchases like a car,
boat, RV, vacation home, time-share, or home improvements. Other uses include college tuition,
investment opportunities, or starting your own business. Of course, it’s your loan, so you can really
use the funds any way you see fit. Cash Out can be taken either in a new 1st mortgage, a new 2nd
mortgage (e.g. Fixed Rate Equity Loan, or a Variable Rate/Revolving Equity Line that you can write
checks on), or a combination of a new 1st & 2nd mortgage. Your AmeriStar Loan Officer can help
guide you to the choice that’s best for you.
back to FAQ
Reasons to Refinance Include:
- Lowering Payment
- Reducing Loan Duration
- Consolidating Higher Rate, Non-Deductible Debt
- Replacing an Adjustable Rate Mortgage with a Fixed Rate Mortgage
- Replacing a Fixed Rate Mortgage with an Adjustable Rate Mortgage
- Taking Cash Out
Let’s look at each of these in more detail.
Lowering Payment: A mortgage payment can be lowered 4 ways:
Reducing the Interest Rate: To determine if a “rate reduction refinance” makes sense, use this
formula:
Cost of refinance
Divided by Monthly Savings
Equals # of Months to Breakeven
To break even on this type of refinance, keep the new mortgage for at least the number of months
needed to recoup the closing costs. Of course if breaking even is secondary to your primary goal of
improving monthly cash flow, in most cases the closing charges can be rolled into the new loan,
which at least gives you the ability to achieve your immediate objective of lowering your payment.
FYI- The old axiom of needing a 2% reduction from your present rate doesn't necessarily hold true
anymore. The average loan amount today is far greater than it used to be, so accordingly it takes a
smaller reduction in rate to save the same amount of money on a larger loan amount. Ultimately
it's up to you to decide what amount of monthly savings is worthwhile.
Reducing the Balance: Paying down the balance at closing provides a new mortgage payment that
will be lower, given that the same terms are in place. (e.g. rate & loan duration)
Increasing the Loan Duration: You can lower your monthly payment by increasing the loan
duration, for example, by refinancing a 15-year loan to a longer 30-year loan.
Taking an Interest-Only Mortgage: This type of loan program requires only that the interest be paid
each month. In other words, the loan balance will not decrease unless extra principal payments
are made voluntarily. Because no principal payment is required, an interest-only loan has lower
payments than a loan with a set duration (also known as an “amortization schedule”).
Reducing Loan Duration: Equity increases at a faster pace the shorter the loan duration. Another
benefit is the fact that shorter duration loans usually have lower interest rates than longer duration
loans. Monthly payments increase, however, due the extra principal being paid. If your goal is to
payoff your property faster and also save thousands of dollars in overall interest, a shorter duration
mortgage will do it. (You can also pay additional principal toward your existing mortgage and
accomplish the same thing without refinancing, saving the closing costs. But it requires a
disciplined approach, and rules out the opportunity to get a lower rate on a new mortgage.)
Consolidating Higher Rate, Non-Deductible Debt: You can put the equity in your home to use by
refinancing with “cash out” to pay off higher rate, non-deductible debt, saving money on interest
and also reducing your tax burden by increasing the amount of mortgage interest you can deduct
on your income tax return. There are limits on how much mortgage interest can be deducted, so
please consult your tax adviser.
Replacing an Adjustable Rate Mortgage (ARM) with a Fixed Rate Mortgage (FRM): Sometimes
homeowners take an ARM with an initial fixed period of 3, 5 or 7 years thinking that they will move
within that time, only to find that that the years have flown by and now a fixed rate would feel more
comfortable. If so, refinancing out of the ARM to a FRM (fixed rate mortgage) gives the peace of
mind from knowing your mortgage payment will no longer be subject to adjustment.
Other homeowners take out an ARM and are completely comfortable with the prospect of rate
adjustments at the time, but due to changes in their lives and the economy such as marriage,
having children, increased living expenses, or possible recession, now would prefer the stability of
a FRM (fixed rate mortgage).
Whatever the case, AmeriStar has FRM loan terms from 5-, 10-, 15-, 20-, 25-, and 30-years in
duration, all at competitive Fixed Rates.
Replacing a Fixed Rate Mortgage (FRM) with an Adjustable Rate Mortgage (ARM): Let's say
you've been in your home for 5 years, and know for certain that you will not be there for more than 5
more, and have had a fixed rate mortgage. In this instance you could consider a 5/1 ARM provided
it has a lower rate than your current fixed rate mortgage. Doing so can save you thousands of
dollars in interest over the next 5 years. AmeriStar also has 1-, 3-, 7-, and 10-year ARMs for your
consideration.
Taking Cash Out: You can use the equity in your home for large, longer-term purchases like a car,
boat, RV, vacation home, time-share, or home improvements. Other uses include college tuition,
investment opportunities, or starting your own business. Of course, it’s your loan, so you can really
use the funds any way you see fit. Cash Out can be taken either in a new 1st mortgage, a new 2nd
mortgage (e.g. Fixed Rate Equity Loan, or a Variable Rate/Revolving Equity Line that you can write
checks on), or a combination of a new 1st & 2nd mortgage. Your AmeriStar Loan Officer can help
guide you to the choice that’s best for you.
back to FAQ
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