How to lower your mortgage payment

Posted by: Mark Bullock - bio | email

MONTGOMERY, AL (WSFA) - There's at least one positive aspect of the economy these days -- mortgage rates. They're lower than they've been since the 1960's.

The decrease is due in part to the federal government, which is purchasing more mortgage-backed securities.

That means some homeowners could save big money by refinancing. But how do you know if refinancing is right for you?

"The number one question I ask people who want to refinance is 'how long do you plan on staying in your home?' said Barry Carroll, vice president of the mortgage division at Colonial Bank.

If you plan to be in your home at least 2 more years and you have some equity built up, refinancing may be worth your time.

"It's gotta make sense," Carroll said.

How does it work?

Let's say your current interest rate is 6.5% and you're paying $1,000 per month on an average-priced home.

If you can get the interest rate down to 4.5%, your monthly payments could drop as low as $760. That's a monthly savings of more than $200.

Unfortunately though, it's not quite that simple.

When refinancing a home, you are also required to pay closing costs. That up front money will reduce your overall savings by several thousand dollars.

Carroll says the length of time it takes to make up those closing costs -- or break even -- is an important factor to consider.

"Take the monthly benefit and divide it into the closing cost to see when you break even," he explained.

If it would take two years or less to break even, then refinancing may be right for you.

If so, experts recommend that you do it now. There's no telling how long these low rates will last.

"Once the government backs out of buying mortgage backed securities, the interest rates will go up," Carroll warned.

It's likely you have until the end of the year to act. The government is expected to continue buying securities through December.

Where do I start?

Carroll recommends talking to a mortgage broker face-to-face about your personal situation. He does not endorse Internet-only companies.

He also says you should not be asked to pay up front fees. Reputable firms should charge only the closings costs.

To see how much you could save by refinancing, check out the mortgage calculators above from Colonial Bank.

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