Be careful of bankers or mortgage loan officers offering dirt-low interest rates to refinance a home that you have owned for many years.
The deal might not be as good for you as it first appears.
Keep in mind that the longer the you pay your mortgage the more money goes toward your principal and less for interest.
On a $1,000 a month initial mortgage payment you might be paying $990 in interest and $10 goes toward reducing your actual mortgage.
During the last few months of a 30-year mortgage it would be in reverse with $10 going toward interest and $990 going toward your principal.
So lets say in your eight’s year of a mortgage that you are paying at a rate of 6 percent and your mortgage company offers you an opportunity to refinance at 4 percent.
Sounds like they are stupid. Maybe not. You need to check the figures to see how much you will pay in principal and in interest before your mortgage is paid. It could make sense or not, don’t assume its a good deal.
I got the idea for this column from James Schembari who wrote a piece for the New York Times recently tackling the same issue when Chase offered to reset his mortgage rate.
Read how he handled it.
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