If you have been paying attention to any financial news lately, I am sure that you are aware of the historic low interest rates right now. In a report released last week by Freddie Mac (Federal Home Loan Mortgage Corporation), they announced that rates recently hit an all time low. The average interest rate for a 30 year fixed mortgage dropped to 2.86% last week and the average 15 year fixed mortgage was 2.37%. For those of you that haven't been around long enough to grasp the magnitude of how low those rates are, consider that in 1981 the average 30 year rate was 16.63% and the 47 year average sits right at 8.0%. . What do those rates mean for a typical payment? Check out this chart showing the monthly principal and interest payment due on the same $250,000 loan at the high in 1981, the historic average, and todays rates:
Principal and Interest payment for a 30 year $250,000 loan:
@ 16.63% (1981) = $3,489
@ 8.0% (historic average)= $1,834
@ 2.86% (current rate) = $1.035
As you can see the interest rate makes a significant difference in the monthly payment. For the exact same house you would have been paying more than three times the current monthly payment in 1981 and 77% more based on the historic average.
So is it time to refinance your current mortgage and take advantage of these all time low rates? People often ask me how to determine if it makes sense to go through a refinance. There are many factors that play into this decision but I will show you how I come to this decision on my properties. The process is a pretty simple mathematical break even analysis that goes like this:
Hopefully, this quick calculation will help you decide the value of a mortgage refinance. Please reach out with any questions or if I can help you determine the value of a refinance.