Posts Tagged ‘home buyers education’

Refinance Break Even Point – What People Do NOT Know

Refinancing Breakeven Point Calculation

This is one of the basic factors to check when thinking of refinancing your mortgage, and surprisingly this is one of the financial factors most people have the greatest error with. Calculating the refinance break even point is not difficult, and because of that many take the break-even short cut and can end up doing a crucial mistake!

What Is Refinance Break Even Point

The refinance break even point or break even period, is the amount of month a person needs to be living at the refinanced home , before the new mortgage savings take affect. his is commonly one of the first calculations someone refinancing needs to do, and because many do a basic mistake calculating their refinance break even point, they either quit or give up their chance to refinance!

 The Refinancing Break Even Point Breaks People’s Hope

Any mortgage broker you turn to, in order to begin your refinancing process, will ask you at the beginning of the meeting: “How much time do you plan to stay at your current home?”. Then they will run a short refinance break even calculation, and they will show you that you will break even within 31 month.. or 55 month..

Others will read refinancing articles and see there the simple refinancing break even calculation, they will do the math themselves, see the figures and the first thing the do is get disappeared and lose hope for refinancing.

The homeowners have no idea that the mortgage broker and most blogs are showing the most basic mistake of miscalculating the refinance break even point.

What Is The WRONG Refinancing Break Even Point Calculation

Before we review the CORRECT refinancing break-even calculation, it is important you meet the most common mistake usually done. This wrong calculation is done as a rule of thumb in most cases people do not use a breakeven calculator to do it but just simple math.

Lets say you have current monthly payments of $1500 and you run a refinance calculation to see if the refinancing would save you money and the NEW mortgage monthly payments are $1420. This means that refinancing will save you $80 per month.

But refinancing has costs and fees. These fees and costs are paid upfront at the closing of the new mortgage. Lets say the mortgage points were $2400. The basic break even calculation most people would do will then be, to divide the cost by the monthly savings.

This will give them the amount of month it would take to pay off the refinancing costs. In our example it would be 2400/80 = 30. This means it would take 30 month until the closing costs are paid and the real saving of the refinance would take place.

Mortgage Refinance Break Even Period

These 30 month are also called ‘break-even-period’ because if you move from your current home before the 30 month period, then there would be no savings for the refinance process at all. So the mortgage broker (and you) will need to know your future plans before determining that the refinancing was worthwhile the hassle.

Why The Break-Even Rule Of Thumb Is Wrong

There are several factors that this mortgage break even calculation misses, and these factors are critical before taking a decision whether to refinance or not. So lets do some analysis for the mortgage refinance breakeven point:

Loan Balance – There is a difference between the original mortgage principle and the refinanced principle. Different loan balance means that there is a different amortization chart for each, and this means that the borrower will probably owe LESS to the lender at the end of the 30 month with the refinanced mortgage.

Now if at the end of the 30 month (because of the different amortization process) the borrower owes $4000 less on their overall amount debt, the 30 month ‘break-even-point’ is not correct… and should be much sooner.

Time Value of Money. Cash payments you pay today are ‘worth’ more than money paid somewhere in the future. Why? Because if you have $5000 today, investing them in any investment plan the bank gives you, will make them worth in the future more than $5000. So placing a $5000 closing costs now, is not similar to the value of reaching the same $5000 within 30 month.

Tax Deduction. When dealing with money, every bit counts, and the overall picture needs to be seen. Points and interest rates are both tax detectable, but they have different tax value. The points are detectable for the same year of the loan, while the mortgage interest is tax detectable for the years they are paid.

How To Calculate The Mortgage Refinance Break-Even Point

Follow the steps below to find out is it worth for you to refinance your current mortgage.

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Other readers found these articles interesting too:

1. Refinancing Tips & Tricks
2. 5 Critical Steps At Mortgage Closing Meeting
3. What Is The Process Of Refinancing A Home Loan?

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Homebuyer 2011 Education Course

Homebuyer 2011 Education Course Will Save You Money

First time homebuyers might be doing a number of vital mistakes possibly costing them lots of money throughout the lifetime of the mortgage. Not having a certain amount of education those homebuyers might waste thousands of dollars on high mortgage closing costs fees and higher interest rate when buying their new home.

The basic homebuyer education course is to know that purchasing a house is doing an investment which is usually ones by far the most expensive purchase ever. Here are 7 new homebuyer education topics.

2011 Homebuyer education 1 – Learning your credit.

Not fixing your credit. You will certainly be surprised from the amount of first time homebuyers who send their mortgage application wishing to be Okayed. To many of them have not even looked at their own credit rating.

Too many never checked their credit report in order to repair their statement. Before applying go search for Internet sites which will offer you a full credit profile checkup including possibility to repair most of the glitches in your credit score. Those changes might bring you closer to meet the criteria for a mortgage loan. A better credit score can lower your mortgage interest rates !

Home buyer education2 – homebuyer’s opportunities.

Not searching for first-time homebuyer opportunities. These types of opportunities and offers are usually financed through cities or federal agencies. You might want to check FHA loan requirements or the USDA VA – 0 down home mortgage loans; those generally provide very low advance payment support to homebuyers which match specific requirements. Checking for the first time homebuyer’s assistance is the smartest move. It is bet you check here at The Federal Housing Administration (FHA).

Homebuyers lesson 3 getting pre-approved at 2011

Acquiring pre-qualified as opposed to pre-approved. The majority of homebuyers tend to be mixing up these a pair of phrases. Pre-qualification is known as a more informal procedure in which the loan provider might draw ones credit rating and depending on the details to inform them or give a pre-qualification letter.

The pre-approval procedure is when the loan officer goes with you through a mortgage loan originationprocess typically demands one to hand in tax returns, existing pay out statement as well as bank statements prior to the stage the bank issues your letter which expresses you will be pre-approved with the mortgage.

New home buyer course tip 4 – going for a huge mortgage.

Simply because you are approved for a large amount of money does not mean you need to take it. Check the how much home can I afford calculator !Keep in mind that life usually may toss you some unwanted financial surprises whenever you least anticipate it. Get a first time homebuyers  loan that allows those unexpected events to be handled and still enables you to come up with the month-to-month payment without getting broke to the bone.

Home owner education 5 – Not shopping for the best loan.

Despite the new federal requirementsthat uncover the majority of the concealed charges applied by quite a few mortgage companies, homebuyers even now get mortgage loan quotes that include heaps of junk fees. Do not go lazy while shopping for your best deal.  Search for alternatives, negotiate, benchmark your loan provider for lower mortgage closing costs. Aslo be sure to check Government Home Loans First Time Home Buyers, they are out there just waiting to give you money..

First time homebuyer tip 6 – Prepare for 2011 closing costs.

Being able to get a good mortgage loan rate is one thing. Managing closing costs is a different story. These types of loan closing fees costs generally consist of lawyer charges, title coverage, and prepaid homeowners insurance along with house taxation’s and loan provider charges. Those expenses generally sum up for approximately 3 % to 5 % of the loan. The home buyer without education might not be ready for those fees. Its up to you to ensure your loan provider puts together an exact price tag to close your spread sheet.

Homebuyer education 7 – Life still goes on.

Ever heard of Murphy laws? Those statements that say: What ever might go wrong usually do… And that means you need to leave enough cash as free money in order to keep on living. If you don’t plan for these expected and unexpected events at 2011 or in the future, your mortgage returns will soon be too heavy on your family’s budget.

 If you think you have not undertaken enough preparation steps before applying for your mortgage, it is worth to get more home financial education in order to be a new home owner.

See here for some mortgage and loan definitions glossary.