When rates change rapidly, reach for a refinancing calculator

July 26th, 2012

Another new low in mortgage rates is creating opportunities for home buyers and homeowners alike. Today's rapidly changing rates have also made mortgage calculators more essential than ever.

Mortgage rates dipped to a new low of 3.56 percent in mid-July of 2012. For prospective home buyers, these rates plus depressed home prices make for an exceptional opportunity. For current mortgage customers, opportunity comes in the form of a chance to refinance. For some, this may even be a second shot at lowering mortgage payments. The way mortgage rates have moved, it makes sense to consult a refinancing calculator on a regular basis.

Keep your tools sharp

It used to be that a mortgage calculator was something you might use a couple times in your life -- once while preparing to buy a home and then, if you were lucky, you might get a chance to refinance somewhere along the line. That was before the unprecedented changes we've seen in mortgage rates over the past few years.

Consider this: Suppose someone decided that a 1.5 percent drop in mortgage rates would make it worth refinancing. If that person had bought a house in mid-2007, when 30-year mortgage rates reached 6.70 percent, by the beginning of 2009 that homeowner would have had the chance to refinance at a rate 1.5 percent less than the original mortgage, as rates dropped below 5.20 percent.

By July of 2012, that same homeowner would have seen the drop in rates cross the 1.5 percent threshold yet again. That means two worthwhile opportunities to refinance within five years, or a cumulative drop in rates of more than 3 percent.

A refinancing calculator can tell you when a drop in rates crosses the threshold that would make it worthwhile to refinance, after fees and closing costs are considered. It can also help you figure out whether you can afford to switch to a 15-year mortgage -- a move that could give you another interest rate savings of about 0.70 percent.

In this environment, anyone who owns a home should stay freshly acquainted with how to use a refinancing calculator. Mortgage calculators and refinancing calculators are important tools, and when interest rate changes come fast and furious, it makes sense to keep those tools sharp and ready to use.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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