Hopefully this post will help you find the answer.  When is the right time to refinance?  With interest rates so low, it seems like refinancing your home loan might be a good idea.  What are the determining factors?

There are a couple of things to look at when considering a refi. First, do you have any equity in your home? If you owe $250,000 for your home, and you owe a total of $245,000, you probably won't be able to refinance unless it is a VA loan. And VA loans are a whole different ball game.

Now, as far as whether the rates will go lower? There is no crystal ball. Wish there was, cause I'd be rich. You do it when it makes sense to do it. We refinanced twice within two years, because rates dropped significantly and held for a bit (first refi), then eight months later they dropped again (second refi). That was five years ago, and we won't be refinancing again. We're extremely pleased with our rate!

The most important factor in whether to refinance is, will it actually save you money? First, see what your monthly payment is now. Then have your mortgage officer figure out what it would be if you refinanced. What is the difference? For example, let's say you pay $1800 a month now, a refi would have you paying $1600, for a savings of $200 a month, or $2400 a year.

Sounds great, but what about the cost of the refinance? It does cost money to borrow money, after all.

Figure out what it is really going to cost to refi. Closing costs, prepaid taxes, prepaid insurance etc.  all need to be considered.  Yes, it can be added into the cost of your mortgage in most cases, but you do still have to pay it. That is the true cost of your refi.

In this case, let's say that it is going to cost $8,000 up front, but you will get part of that back from your original mortgage company. (You will receive a check from your former mortgage company once they close the escrow account.)  So the true cost is $6,400. Now, how long is it going to take you to make up that expenditure?

Divide your $200 a month savings into the $6,400 cost of the refi, and you will see that it will take 32 months to start seeing any financial gain. Basically, for the next 2 1/2 years, you will be paying for your home plus your refinance. After that, the $200 savings is gravy.....

In this case, if you are planning to stay in your home for more than two and a half years, then it may be the right time to refinance your home. If there is a good chance you will be moving before then, keep the rate you have.

If you are considering refinancing your Kitsap, Pierce or Mason County home, call me for a referral to a great local lender.  They'll take good care of you!  And as always, if you have questions, feel free to give me a call - I'm happy to help!