Thanks to my associate, Marshall Graham, a lender with Aulds, Horne, and White for the following information to help you decide whether refinancing is right for you in your situation.
The question whether to refinance or not can seem overwhelming to most. After all, we're speaking of your number one asset! How does one know when the right time to refinance is? The mortgage industry is notoriously popular for statements such as, "My cousin Vinny said that you shouldn't refinance until a 2% reduction in rate". My intention is to shed some light into the mystery question, "When Should I Refinance?!"
The answer cannot be summed up as easily and as blatant as 1%, or 2% rate differential. Why? Because a 1/8th of a percent increase in the rate of a $10 million commercial loan is a lot bigger deal than a $50,000 residential loan! The size of the loan plays a very important role in determining the rate spread necessary. The following chart, based on loan size, may be used for quick reference:
$300,000 3/4%
$200,000 7/8%
$100,000 1%
$75,000 1.5%
$50,000 2%
Obviously, if two people at work are discussing whether to refinance that have two completely different loan sizes, the general statement of a 1 or 2 percent differential would be mathematically skewed. The client with a loan size of $300,000 with a 1.5% rate differential would far exceed the benefit of a refinance than a client with a $50,000 balance, because many of the closing costs associated with conducting the loan are fixed, not based on loan size.
The amount of closing costs plays a key factor in determining whether or not to refinance. After all, it wouldn't make sense to try to lower your payments $40 if your costs to do so were $9,000. It is here that one can determine a financial break-even point. The break-even point, which is defined as how many months and/or years must one reside in the property for it to be cost effective to refinance, is calculated by taking the total amount of closing costs and dividing that figure by the estimated payment reduction.
Break Even Point = (Total Closing Costs/ Est. Pmt Reduction)
The break-even point calculation assumes that only one variable is changing within the equation; the client is not moving from a 30yr to a 15yr term etc. Typically, we are finding our clients breaking even in 7 to 12 months.
Another important facet of refinances is based on the length of time one plans to remain living in the home. If a person plans on selling his or her home in 4 months, he or she definitely should not refinance. If you plan on staying in the property, (even one month) longer than the break even point, than you SHOULD refinance.
Lastly, much discussion is based on at what interest rate and when should one lock in. Personally, I am currently witnessing clients with a $200,000 + balance with a rate at 6.25%, whom would NEVER even consider purchasing a lottery ticket, not locking in at 4.75% with No Loan Origination Fee, because they are holding off for 4.25%?!? Are you serious? So what I'm being told is , "Marshall, a $188 reduction in my mortgage is not good enough...." Yet if that client continues to pay exactly what he's currently paying , but instead at a rate of 4.75%, the client would reduce the term by 8 ¼ years! ($2,256 * 8.25) = $18,657. Or, take that $18,657 and invest it at a rate of 5% in the following 10 years, and you just saved $31,909........the amount of your newborns college education. If the Haynesville Shale has taught us anything, it's that greed can lead to nothing in the end. An old saying in poker comes to mind, "It's better to win a small pot, than to lose a big one!"
Marshall F. Graham
Aulds Horne and White
318.869.4444
Marshall.Graham@AuldsHorneWhite.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
You're at Home with Heather
Shreveport and Bossier City, Louisiana Real Estate
Shreveport Home Connection
Coldwell Banker J. Wesley Dowling & Assoc. LLC
Serving your real estate needs in Shreveport, Bossier City, Benton, Haughton, Keithville, Stonewall, Blanchard, and Barksdale AFB
Licensed in Louisiana
Not to mention all the status updates of all these people who I have no relationship with!
credit.
Their estimates show an additional 555,000 home sales, which they believe would be enough to meaningfully draw down excess housing inventory. 
