With Mortgage Rates relatively low and with the Federal Government lowering the Prime Rate many of my clients in Florida are starting to consider refinancing their current Mortgage's. However, before you rush off to your favorite Mortgage Broker I would recommend you find out what your Blended Rate is. (The True Cost of your Money)
Many of my clients have taken out over the years Home Equity Lines of Credit.(HELOC) These type of loans are tied to the Prime rate. The rate as of today (3/25/2008) is 5.25% but in many cases if the clients credit was very strong many banks who issued these Credit Lines had fantastic deals. This is the case of one of my clients. I refinanced their current loan a while back to a fixed rate mortgage, because they had long term plans to stay in the home and the rate was 6.25. After the loan was closed my client was approved at their local bank for prime -.50 for the life of the loan. In today's market that would make the interest rate 5.25 -.50 = 4.75%.
This leads me to the purpose of this post. Earlier in the week the client had seen you can now get a 30 year Fix in the 5's and was thinking maybe they should refinance their current mortgage. This led me to a meeting with my clients to explain what the "Blended Rate" is and to see if it makes sense.
Current Rate 6.25% (1st Mortgage) 4.75 (2nd Mortgage HELOC)
Balance Balance
$300,000 $100,000
Now lets do some simple math:
300,000 + 100,000= 400,000
or
1st Mortgage = 75% total owed
2nd Mortgage = 25% total owed
Now we take the 1st mortgage rate 6.25 x 75% (6.25 x.75) = 4.69
Now we take the 2nd Mortgage rate 4.75 x 25% (4.75 x.25) = 1.19
From this we total the two numbers to find the "Blended Rate" of 5.88%. This represents the true cost of what my clients mortgage is or the cost of money.
Now with the current state of the economy it would be a pretty safe bet that we are not going to see the Prime Rate going anywhere but down. In Florida, this loan on average would of cost in closing costs around $8,000 with no points or fee's from myself.
My suggestion if you are thinking of refinancing please review both your notes to see what you true rate is. In addition many Home Equity Lines of Credit have different terms and conditions many of them have teaser rates (rate is good only for so long). If you have any questions please consult your Mortgage Professional to find out what your Blended Rate is.
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