How to Decide:
Is Refinancing the Right Decision for You?
Because of ongoing events and the current low-interest rates being seen, many homeowners are contacting me and asking ...
"Would a Refinance of my present mortgage be a smart move?"
My answer to them is typically, "Well, it depends."
It's easy to see why most callers think my response should be a quick and simple yes or no.
Most articles I've run across do tend to portray it in that manner ... as "right or wrong" or in stark black and white terms, with an answer solely based on dollars and cents alone.
And that can be true in some cases. Interest rates have remained low (but volatile) for quite a while, and for some mortgage holders, an answer can be fairly obvious.
- May be able to save on monthly mortgage payments
- Years may be able to be shaved off of an original loan term
However ... (there always that however or but, isn't there?)
I've found that the answer to this timely and important question, while certainly entwined with financial considerations, is often based on events occurring in the life of the individual mortgage holder(s) at the time they are asking the question. And the answer, when found, is personal only to them.
Simply, there's typically "more to the story". And because of that fact, the answer received and actions taken by one client can never be a template for another's.
Each inquiring borrower has their own life with a differing set of circumstances and differing financial scenarios. Each has differing needs, different goals, and different outcomes that are called for.
Here are a few examples of the different scenarios that have driven decisions for past clients:
- Clients have changed jobs. (As a result, methods and frequency of salary/pay have changed)
- Client has inherited a large sum of money
- Clients wanted to consolidate mortgages
- Clients wanted to change loan types/products
- Clients divorced (Buy-out partner/spouse)
- College costs have loomed for children
- Remodeling was needed
- A Family member added (or removed) on the loan
- HELOC came due, terms changed, etc.
- Reduce 30-year loan to a 20 year or 15-year term
- More ...
Often the real driving force behind their inquiry and refinancing is "life" itself ...
But no matter "the why" behind the question, there is one simple truth. All Lenders should require that basic information be assessed for their client prior to making an assessment of viability for refinancing.
So, what info should you have available for your Lender when you contact them regarding a Refinance? That info includes:
- Current mortgage interest rate held
- Current loan balance to be paid
- Current Mortgage Escrow(s) balance
- Equity held in the home
- Current Credit Scores (or allow Lender to Pull Credit)
- Remaining term of Mortgage held (or the Original Loan Term)
- Current Mortgage Payment (Does it include PMI?)
- Current outstanding Debt (DTI/Debt-To-Income)
- More ...
Other information that must be considered, as with any mortgage, is that Closing Costs will be incurred. Those costs will typically include:
- An Appraisal Fee
- Title Insurance costs
- Taxes (if Escrowed and a part of the payment)
- Homeowner's Insurance (same as above w/ taxes)
- Loan Origination Fee
- Any costs specific to the individual Borrower (For example: If a borrower decides to pay points to obtain a lower rate)
Closing Costs incurred while refinancing can be paid in varying ways. Payment can be made at the time of Closing. It's also possible to "roll payment into" the new refinance loan itself. All these factors, plus all financing options available, will then be thoroughly analyzed.
Here's a simple method of analyzation I've found that often proves helpful to my clients when considering a Refinance:
- Projected Future Savings @ Proposed Interest Rate = $_____/Month
- Projected Savings if PMI is dropped $_____
- Savings realized/year after Refinancing = $____
- How many years it takes to recoup the cost of the loan/ Refinance = X
- Answers above = Your Answer