Should You Refinance?

Refinancing a mortgage means:

• You take out a new home loan with new loan terms.
• The new loan pays off your original mortgage.

Reasons to Refinance

• Many homeowners choose to refinance to:
• Get a lower interest rate or monthly payment to free up room in their budget.
• Shorten their loan term which reduces the interest they pay and can help them pay off their loan faster.
• Switch from an Adjustable Rate Mortgage (or ARM) to a Fixed Rate Mortgage so that their monthly payment is fixed.
• Pay off credit card or other debt.
  Remodel their home.

Refinancing a home can be a smart financial move, but you need to take time to evaluate your situation before you jump into refinancing.

Things to Consider Before You Refinance

How Much Equity Do You Have in Your Home?

Over the years, values have increased, which means for many homeowners, you have built up equity in your home. Your equity is the portion of the home that you own and is calculated by subtracting the mortgage balance, that’s what you owe on your current mortgage, from your home’s market value. For conventional mortgage refinances, you will need to have at least 20% equity in your home to avoid paying private mortgage insurance.

How Much Are Closing Costs?

Your mortgage professional will be able to tell you what your closing costs will be to refinance your mortgage. The cost to refinance a mortgage will vary according to your interest rate, credit score, loan amount and the lender you choose. The closing costs of a home refinance generally include credit fees, appraisal fees, points (which is an optional expense to lower the interest rate over the life of the loan), insurance and taxes, escrow and title fees and lender fees.
If you have enough equity in your home at the time of refinancing, you may choose to finance your closing costs and fees by adding them to your mortgage balance. You may also decide you want to take some cash out with your new mortgage, this cash may be used to cover your closing expenses.
A no-cost mortgage does not mean that it costs you nothing. With a no-cost mortgage you will have the cost of the mortgage tied into the interest rate, which means you could end up with a higher interest rate.
You’ll want to be sure to check with your licensed mortgage professional to find out your refinance options. I am happy to help you determine if now may be a good time for you to refinance.

How Much Interest Will You Pay?

Cutting your interest rate can help you pay less interest over the life of a new loan, compared with the remaining term of your original loan.
However, even with a lower monthly mortgage payment, you could be paying more interest over the long term by stretching out your new loan term. You could calculate how much interest you would be paying on both loans and compare the amounts. If it makes sense for you to refinance, especially if you are going to be lowering your monthly payment, then it may be a good time for you to refinance.

What’s Your Current Interest Rate?

If you don’t know what your current interest rate is, you can find it by looking at your monthly mortgage statement.

How Long Will You Be in Your Home?

Even if you can lower your interest rate and monthly payment, refinancing might not make sense if you are not going to be in your home for the next year or two. It’s going to take some time to recoup the cost associated with refinancing your home and if you plan on moving soon, you won’t have time to recover the cost of refinancing. If you have 21 years left to pay off your existing mortgage and you get a new 30-year mortgage, you’ve just added nine more years of paying a mortgage before it is paid off. You may want to consider getting a loan for less than 30 years. If you can lower your monthly payment or even keep your payment the same but pay your mortgage off faster, you could be debt free faster.