As we reach the end of another year we realize that many things we had planned to do remain as they were when we added them to the list, and in some cases the time to accomplish this task has passed. If you were going to get married before you were 25 and you're now 25 1/2 a revision in the plan is definitely in order. Retirement at 62 sounds good, but not if you are still working at 64. Remember your previous goal of earning a $1,000,000 before age 40? You probably forgot that goal years ago and it has come back to mind now that you are struggling to make ends meet in your retirement. Owning a mortgage in the 4% range while you are paying 6% currently would be a great idea. The good news? It’s still a great idea. Time has not run out.
Why is this important? A lower interest rate generally means a lower payment, except if you combine the lower interest rate with a shorter amortizing loan. (Although it could still happen if your current rate is high enough, or if you have paid your current fixed rate loan down far enough and/or if your credit has gone up and your loan to value has gone down.) The main reason lowering your interest rate is important is because more of your payment goes to principal reduction of the loan and less of it goes to the interest being paid on the loan. The ultimate result is a smaller payment than before with more principal reduction than your previous loan and less interest going out. That is a win in every category.
Example: A borrower takes a 6% 30-year fixed mortgage for $300,000 and, four years later, had paid it down to $284,200. His current payment is $1798 per month, composed of a $375 principal pay down and a $1403 interest. If he refinances, his new payment will be $1504, with a $403 principal pay down and $1101 interest. The bottom line: lower payment, more principal reduction and a lower amount paid to interest.
Not everyone could refinance because they couldn't qualify for one or more reasons: not enough documented income, credit score to low or lack of sufficient value in the property. Some of that can be alleviated so they can move forward. What I can't understand is why some people can't find time to get "around to it," why some are waiting for rates to get lower and some feel that it just isn't worth their time!