Refinancing has been a huge part of the real estate market. Homeowners buy their homes and after just a couple of years it’s not uncommon to see them refinance. The reason so many people refinance is because the refinance allows them to change the terms of their loan, usually in a way that better fits their financial situation. With a refinance, you can often get a lower interest rate, reduce your monthly payment, or even pull out your equity and use it elsewhere. That being said, there is always a risk with any financial move that you might end up losing money. FHA refinance calculators are a good tool to use when navigating the waters of a refinance.
Fees That Stack Up
Refinancing your home is not a cheap process. Most refinances cost the homeowner at least a couple of grand in closing costs, and in many cases that number is significantly higher. Also, every time you refinance you are taking out an entirely new loan, which means that you have to pay any pre-payment penalties that your lender has in place. On top of this, your amortization schedule restarts and you end up back at ground zero.
A refinance may seem like a basic process and in many cases it is but there are many different elements of the refinance that will come together and make or break it for you. Nobody wants to refinance only to realize that they now owe more on the home than they did before, or that they’ll end up paying more in the long run than they would have. All of the fees, prepayment penalties, closing costs, and reset amortization schedules can and will influence whether or not your refinance is successful.
Aside from the expense of the loan, you also have the break-even point of the loan. The point where the expenses are finally paid off, and you are now saving money on your investment. Some refinances hit the break-even point within a year while others take a bit longer. When the break-even point doesn’t happen for four or five years, you really need to look at the loan and decide whether or not the financial benefit is actually worth it. It’s always a good idea to pay attention to that break-even point and plan accordingly.
Using the FHA Refinance Calculator
In order to get the most out of your refinance, you need to figure out how to get all of the pieces calculated. This you will give you a fairly good idea of what kind of financial impact the refinance will have. A refinance calculator will help you accomplish this step. Refinance calculators enable you to put in all of your information about the loan including your interest rate, loan term, and any additional costs. Once you complete the input, it will spit out an estimate of the financial impact. Some refinance calculators will show you a comparison of your current loan and new loan.
Do some number crunching but before you start getting serious it’s always a good idea to get a few loan quotes, so you have a better idea of what you qualify for. As a general rule of thumb you’ll want quotes from different types of lenders, some national and some local. For the best comparison, you’ll want to get all of the quotes within the same day. With these quotes, you can then put into the calculator and compare to your original loan, as well as your desired loan. The calculator can be a great way to determine which lender will work best for you. Most lenders don’t want to lose your business, so they are often willing to negotiate a better deal, especially if you’ve gotten a better quote.
While a loan calculator isn’t an essential part of the refinance process, nor is it required, but it’s a smart part of the process. Your lender and loan officer can do as much as they are able, and the rest is up to you.