Can I Refinance My Mortgage With 10 Years to Pay?

The amount of money you can save by refinancing is a key factor.

The amount of money you can save by refinancing is a key factor.

You know that you can save a significant amount of money each month by refinancing your existing mortgage loan to one with a lower interest rate, but you only have 10 years remaining on your mortgage loan. The good news is that you can refinance even with such a short time remaining on your original loan. But you will need to determine whether your monthly savings will be high enough to make refinancing worthwhile.

Costs

Refinancing your loan will bring you a lower monthly payment. But the process of refinancing isn't free. The Federal Reserve Board estimates that homeowners can expect to pay from 3 percent to 6 percent of a loan's outstanding balance in closing costs. If with 10 years left on your mortgage loan you owe $100,000, you could expect to pay from $3,000 to $6,000 for your refinance.

The Savings

Lowering your interest rate by a point or more can result in solid savings in your monthly mortgage payments. If you have been paying off a 30-year fixed-rate loan of $200,000 with an interest rate of 6 percent, your monthly payments will have been about $1,199. If with 10 years remaining on your loan you owe $100,000 and you refinance it to a 10-year fixed-rate mortgage loan with an interest rate of 3.3 percent, your monthly mortgage payment will come out to about $979. That's a monthly savings of $220.

Does It Make Financial Sense?

Once you know how much you'll save and how much your refinance will cost, you can determine whether the monthly savings are high enough to justify a refinance. If you are saving $220 a month and paying $6,000 in closing costs, it will take you slightly more than two years to generate enough monthly savings to recover your closing costs. This leaves you with more than seven years to enjoy your savings. If, though, you are only saving $100 a month from your refinance, it will take you five years to save enough money each month to cover $6,000 worth of closing costs, leaving you with just five years of savings to enjoy.

Improving Your Financials

You can boost your odds of receiving a lower interest rate -- and more savings every month -- by paying your bills on time every month and paying down your credit-card debt. This will leave you with a higher three-digit credit score. Lenders generally pass out their lowest interest rates to those borrowers with credit scores of 740 or higher on the FICO credit-scoring scale. You can also shop around with mortgage lenders licensed to do business in your state so that you can find the lender offering you the lowest closing costs.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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