A mortgage is basically a monthly payment that covers the cost of the home and interest over a period of time. The terms of each specific mortgage are specified when the loan is taken out, but there are options to actually lower the agreed upon monthly payment and help save the homeowner money.
Imagine that five years ago you purchased the home of your dreams. Your credit score was not the best at the time, but you were able to acquire the loan that was needed to secure the purchase of the home. The result was higher interest rates and higher monthly payments. Now, five years have passed and your credit is much better than it was when the loan was taken out. As a result of all of this, your projected interest rate has dropped. An interest rate that has dropped from five percent to four and a half percent on a home costing $300,000 could save the homeowner 136 dollars a month. This is calculated assuming that $275,000 is still owed on the current mortgage. That saves this particular homeowner over $8,000 in the next five years.
That scenario was based on only a half of a percent drop. Imagine a whole percentage less than the original interest rate. Going by these calculations; that would be over $16,000 less over a five year period. The higher your credit score becomes, the lower the projected interest rates will be when you decide to refinance. Don’t forget to calculate any prepayment penalties that may be on the current loan as a refinancing expense. Some financial institutions apply these fees if payments are made ahead of schedule to recoup some of the interest that they would lose. Keep in mind that an appraisal is often required to refinance a home as well.
Call First Meridian today at 703-799-5626 to speak to one of our loan officers about lowering your mortgage payments in Washington DC, Maryland or Virginia.