Current mortgage rates are low and it seems like it might be a good time to refinance your home loan. You’ve even begun to gather quotes from several local mortgage lenders advertising competitive mortgage rates. But does it make sense to do a mortgage refinance at this time?

Use a Loan Calculator

It is important to determine the amount of time it’s going to take to recoup any money you put out to refinance. Use the “Is it time to refi?” loan calculator to compare several mortgage quotes. The following example walks you through the steps of using the loan calculator.

Existing Home Mortgage

First, the loan calculator asks for information about your existing mortgage.

• What is the original term of your home mortgage? For this example let’s use 30 years.
• What is the original amount of your mortgage loan? Our example uses $250,000.
• What is the current balance of your home loan?  ($175,000)
• How long have you had the mortgage? (8 years)
• What is your current interest rate? (7%)

New Home Loan 

Next, the loan calculator needs information about the new mortgage.

• What is the amount of the new loan? ($175,000)
• What is the new mortgage term? (15 years)
• What is the interest rate on the new loan? (5%)
• How much are the estimated closing costs? (2%)
• How long do you plan to remain in the home after doing a mortgage refinance? (10 years)

How Much Would You Save?

When you run the numbers in the loan calculator, you get a report detailing your potential savings. Using the numbers in this example you would go from having a monthly mortgage payment of $1,663 to paying $1,384. Over the 10-year period that you plan to remain in the home you would save $33,524 due to the decreased monthly mortgage payment.

Reducing Mortgage Loan Principal

The loan calculator also gives an analysis of the reduction of loan principal. In this scenario if you refinanced and stayed in the home for 10 years the principal would be reduced by $101,667. However, if you did not refinance your mortgage, the principal would be reduced by $111,194 over the 10-year period.

Total Savings

The last part of the report shows that the estimated cost of refinancing is $3,500, which is based on the 2% closing costs. It also shows that the total amout that would be saved by refinancing would be $20,497.

The government’s tax credit for home buyers must be claimed by the end of the month. So if you are dragging your feet on signing a purchase contract, get moving.

Is Your Mortgage in Place?

Under federal guidelines you may be eligible for the tax credit if you sign a contract by April 30, and close on a home by June 30 of this year. If you need a home loan to buy, you need to have that in place so you can make a solid offer for a home.

Military Extension

However, members of the military, foreign service, and intelligence community who qualify have until April 30, 2011, to sign a contract, and until June 30, 2011, to close on a home purchase.

According the Internal Revenue Service:

Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

Extension Seems Unlikely

With positive news out this week about a gain in home sales attributed in large part to the government’s tax credit, you may be wondering if there are plans to extend the credit for everyone else. That’s not likely, according to housing experts.  

“It’s time for the housing market to stand on its own two feet,” a spokesman for the National Association of Realtors told the Wall Street Journal.

Working Overtime to Negotiate Deals

With the April 30 deadline looming, it’s not surprising that many people are scrambling to get deals in place.

Vicki Cox Golder, president of the National Realtors Association, said in a statement:

Realtors are working harder than ever to negotiate transactions, arrange services and complete paperwork. Because many repeat buyers need to sell their current home first, many will be purchasing later without the tax credit but now have the benefit of a more buoyant housing market.

Getting a Mortgage without Tax Credit 

Even if you miss the tax credit deadline, home prices are affordable in many areas and current mortgage rates are still low.

Use a loan calculator to run the numbers and see if it makes sense to buy a home even if you miss the deadline for the tax credit.

A mortgage refinance can lower your monthly payments and decrease the amount of interest paid over the life of your home loan. But don’t just focus on mortgage rates without understanding everything involved with a refinance. Here are eight mistakes to avoid when refinancing a mortgage.

1. Not shopping around for mortgages is a huge mistake. It’s imperative that you compare different deals to make sure you get the loan package that is right for your situation. Not all mortgage refinancing is the same so slow down and take your time. Read the rest of this entry »