Take up an hour of your time can save you years off your home loan

House for sale Take up an hour of your time can save you years off your home loanBy Betsy Fallwell

If it were up to my husband, the dishes would never make it from the sink to the dishwasher; clothes would remain in the dryer in perpetuity; and, most importantly, we’d still be paying a 6.75% interest rate on our mortgage.

When interest rates on home loans started falling in late 2008, many Americans rushed to refinance. My husband wasn’t one of them. “It’s too much work to refinance,” he lamented. “Is it really worth our time?”

In a word, YES! Choosing to refinance your home loan can not only put more money in your pocket right now, but it can also save you tens of thousands of dollars in interest over the life of your mortgage. Yet many people – my husband included – think refinancing home loans is a time-consuming process; it isn’t, especially if you’re working with the right people.

Working with a Mortgage Broker

If you want to compare home loans and interest rates with a variety of lenders, you could go from bank to bank, credit union to credit union, and sit down with a mortgage professional about that financial institution’s products. Or, you spend one hour with a mortgage broker.

A mortgage broker works as a liaison between borrowers, like you, and lenders. Because brokers aren’t tied to any single financial institution, they’re free to introduce a wider range of home loans to their customers. You only have to give this person the information once, instead of repeating yourself to broker after broker at bank after bank. Your mortgage broker will file the paperwork, sort through the home loan products, and share his findings with you.

Whether you choose to refinance with the mortgage broker or not, you won’t owe him anything out of pocket. Rather, if he is successful at connecting you with a new loan, he’ll be paid a commission from the lender for bringing them a new customer.

How Much Can You Save?

If you’re still unsure whether a refinance is worth an hour of your time, spent talking with a mortgage broker, look at how much it saved us:

  • Our original home loan – worth $145,000 – was a 30-year fixed, taken out in 2006, at an interest rate of 6.75%. We were paying $940 a month in principal and interest costs.
  • When we refinanced in 2009 – to another 30-year fixed at 4.5% – we had $135,000 left in principal. Our new monthly payments were $684, a savings of more than $250 a month.

Putting those savings into additional payments on the principal of our mortgage can help us shave years off our loan. You can also choose to refinance to a home loan with a shorter term; the result may be slightly higher monthly payments, but with fewer years and a lower interest rate, you could have your mortgage paid off in half the time!

But I Can’t Qualify For a Refinance!

It’s true that many homeowners have found it more difficult to qualify for a refinance since the housing bubble burst. Many homes have lost value over the past five years, putting honest, hardworking homeowners underwater and limiting their ability to lock in the best refinance rates. A lack of equity in your property could cause lenders to outright deny your refinance request, or force you to pay private mortgage insurance until you reach at least 20% equity in your property.

That’s why it’s so important to shop around for the best rates and products. A mortgage broker is often best-equipped to connect you with the best home loans, because they have relationships with a variety of lenders.

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