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Should You Refinance Your Mortgage?

Posted in Home Ownership
August 18th 2015 by
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Refinancing a mortgage has become a popular option for many people due to record-low rates. However, refinancing isn’t for everyone. Refinancing can also be a bit expensive with appraisal, title search and application fees, along with other closing costs.

If you’re thinking about refinancing, it’s important you understand your options.

Why Refinance?

The most obvious reason is what I mentioned above: low rates. If you’re going to get at least a 1-2% difference, it’s probably worth considering.

Some people refinance to switch to a fixed or adjustable rate (ARM). An ARM is usually a better choice if you think you’ll be selling your house in a few years, as the rates will inevitably go back up at some point.

Another refinancing option is a cash-out refinance. This will allow you to take out some of the equity in your home to pay for college, medical bills or consolidate debt. However, if this is the reason you’re looking to refinance, you might be better off with a home equity loan instead.

You Might Not Be a Good Fit if…

  • You’ve had your mortgage for a long time. If it’s an older mortgage, you’ll be paying down more on the principal than interest at this point. Refinancing would mean you’d be back to paying more on interest, meaning you’d lose a lot of equity.
  • You have a hefty penalty for prepayment on your current mortgage. If you’re using the same lender, this might be waived.
  • You’re not sure of your moving plans. You won’t be able to pick the best option if you’re not even sure where you’ll be living in the next 5 years.

What About These “No Closing Cost” Refinances?

You’ll hear advertisements for loans that have no closing costs or fees, but tread carefully. This means that there may be no or little up-front costs, but you’ll pay for it in the long run.

The closing costs are typically rolled into highest interest rates or the total amount of the loan itself. To get a better idea of what you’re getting into, ask for a comparison of the up-front costs, principal, rate and payments for all your options.

If you’re selling in five years or less, the higher interest rate may be worth it. If not, you’ll be paying that higher rate for the rest of the loan.

Figure Out When You’ll Break Even

The Federal Reserve’s Break Even chart can help you determine when you’ll pay off refinancing costs:

break even calc

Talk to a Loan Expert About the Right Option for You!

Our Loan Experts will ask you what your goals are and figure out the best way to get you there. Contact them today at 1-855-692-8562. You can also apply online.

 


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