Which is better, making extra mortgage payment or refinancing?

By: First Weber
 
 
Spread the Word
Listed Under

Tags:
Refinancing
Home Selling
Home Buying

Industry:
Real Estate

Location:
Madison - Wisconsin - US

MADISON, Wis. - Oct. 19, 2016 - PRLog -- RISMedia, Is Making Extra Mortgage Payments Better than Refinancing, by Jack Guttentag, August 1, 2016
Many mortgage borrowers at some point consider making extra payments or refinancing but are confused as to which would serve them better.

• Extra Payment vs. Refinance
While borrowers refinance for a variety of reasons, only refinancings undertaken to reduce the interest rate can be viewed as an alternative to making extra payments. Borrowers should refinance to reduce the rate if the savings from the rate reduction over the period the borrower expects to hold the new loan will more than cover the refinance costs. The three most important factors in this judgment are the size of the rate reduction, the refinance costs as a percent of the balance and the life of the new loan.
• The prepayment decision, in contrast, is best viewed as an investment decision. The funds used for extra payments are or could be invested in certificates of deposit, bonds or other assets and would earn the return being paid on those assets. Instead, they are invested in reduced mortgage debt on which the borrower earns a return equal to the mortgage rate. Yes, you read that correctly. If you are paying 5 percent on a debt and you pay it off, the funds used for that purpose earn 5 percent. The borrower should make extra payments if the mortgage rate exceeds the rate of return on the assets the borrower would hold otherwise.
• Because they are based on very different factors, extra payment decisions and refinance decisions should be assessed independently. Yet each may affect the other, which is why it is easy to become confused. Two situations arise where borrowers are seemingly faced with a choice between making extra payments and refinancing.
• Complete Payoff vs. Refinance
One situation is where the borrower has a sizeable amount of assets that could be used to pay off the mortgage in full, and also has an opportunity to lower mortgage financing cost by refinancing. He should pay off the loan if the return on the assets used to fund the payoff is below the rate on the mortgage after refinancing. Otherwise, he should refinance.

The See Team is the premiere real estate team in the greater Madison and Middleton Wisconsin area. We have over 60 years of combined experience in real estate, and we know the towns where you want to buy a new home or sell your home: Madison, Middleton, Verona, Sun Prairie, Waunakee, Fitchburg, Spring Green, Oregon, or any other place in South Central Wisconsin.

If you're relocating to the Madison - Middleton Wisconsin area, we'll tell you about our neighborhoods, schools and best places to live. We've lived here all our lives and raise our families here - we'll share with you all we know and make looking for your new home in Dane county a pleasure.

If you're looking for the perfect house, home, condo, town home or land for sale in the Madison / Middleton real estate area, we're your team. We also help clients locate commercial property to rent or own.

SEE the difference.

http://www.seemadisonrealty.com

Relocating to Madison - Middleton, Dane County:

http://www.seemadisonrealty.com/aboutmadison.html
End
Email:***@gmail.com Email Verified
Phone:608-828-5128
Tags:Refinancing, Home Selling, Home Buying
Industry:Real Estate
Location:Madison - Wisconsin - United States
Account Email Address Verified     Account Phone Number Verified     Disclaimer     Report Abuse
See Team Madison Area Real Estate PRs
Trending News
Most Viewed
Top Daily News



Like PRLog?
9K2K1K
Click to Share