When does it make sense to Refinance?
Heading into the Third Quarter of 2019 we have been fortunate to see an unexpected drop in interest rates with fixed rate mortgages dropping to levels we have not seen in years and close to 1% below the highs we saw late 2018/early 2019.
So how do you know when it is a good time to refi? Unfortunately, it is not an easy answer as each scenario is unique. For my clients I will ask:
1) What is your current rate?
2) What is(are) your loan(s) balance(s)?
3) When did you buy the home, what did you pay, what is the current market value?
4) How long have you been in the home?
5) How long do you plan on staying in your home?
6) What are your goals for the refinance?
- Lower payment
- Reduced term
- Stability of a fixed rate
- Debt consolidation
- Home improvement
- Cash out for____________.
It is helpful to have a recent mortgage statement handy when running figures be sure you are doing an apples to apples comparison for you, not only for the rate and the balance, but for the break down of principal and interest in your current payment. It is not just an interest rate comparison, you also need to consider:
Time- the further into a mortgage you are, the less sense it may make to refi to a longer term loan… It is easy to just look at the monthly savings, but you do have to consider the years you add to the loan. The other side of the time factor is how long you plan on being in the home. In most cases a refi will only make sense in the long run, not the short run. You need to be sure the monthly savings makes sense. And no matter how often you see the words “no cost” – that is not the case, there are costs involved in a refi, burying them into the loan is a common option, but it is still your equity.
Savings: How much are you saving each month, and does that make sense based on the term, and the amount of time you plan on being in the home.
Cash out: This covers everything from debt consolidation, home improvements, funds for college, investment, buying another home etc. As an example, just a few weeks ago I was able to structure a loan for a client where we increased the mortgage payment by approximately $250/month but eliminated enough debt to save them well over $2,000 each month. As a side note here, I am strongly against using a refi to pay off a car loan. In general, you want to avoid putting short term installment debt in to a longer-term mortgage. You need to make smart financial planning decisions as well.
Rate: The smaller the loan the larger the spread in rate you will need to see a savings, while the larger the loan the more sense it makes even with a small change in rates. You need to do the math to see if it makes sense. This of course goes out the window if you are paying off higher interest rate debt and putting yourself in a better financial position.
There are many reasons to refinance and an almost infinite number of ways to structure a refi as well. Having a conversation with a licensed mortgage professional that you trust is paramount. While I’d love to do a loan for you, I will only advise you to do so if it makes sense for you and your individual scenario.
Robert Rauf is a Licensed Mortgage Originator (NMLS #248937) with Homebridge Financial Services in Toms River, NJ and can be reached at RobertRauf.com or (732) 908-4868
Mortgage Loan Originator NMLS# 248937
or my blog: http://activerain.com/blogs/rrauf
Office: (732)908-4868 Cell (732)740-0175
Since 1987 I have been helping my clients fulfill their dream of home ownership! HomeBridge Financial Services, Formerly REMN, HomeBridge Financial Services is located at 9 Grand Ave, Building 2 Suite A Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.Homebridge.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood 08722 Bayville 08721, Manchester 08757 08733, Manahawkin 08050, Robert Rauf is a Licensed Mortgage Loan Originator in New Jersey
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