Should I Refinance My Mortgage


I had a conversation this last week
with a past client of mine who we had helped buy a home several years ago now
and with the drop in interest rates that’s happened recently his question
was should he consider refinancing? Is now a good time for me to refinance and
after going through all of the options for him and looking at the savings that
it was going to be coupled with his plans for the next few years yes it was
a good time for him to to refinance so with that in mind I thought you might
have that same question or know somebody that has that same question so I figured
I’d run through some of those options and give you some pointers on what to look
for if you are considering a refinance. My name is Andrew with The Andrew Smith Team at eXp Realty and we’ve been helping buyers and sellers for 17 years
now, both in California and Texas and I just wanted to share some of this
information with you here today. So refinancing, interest rates have come
down and they’re now running depending on you know which bank and which report
you see somewhere just over 3.5% to 3.75%
they’re actually the lowest they’ve been in three to almost four years now, but
does that mean you should refinance. Well when you look at it historically the
rule of thumb has been it’s not necessarily a good idea to refinance
unless you can drop your interest rate 2 full points so you would need to have
an interest rate right now you know 5.5% 6%. That’s changed
somewhat over the years and many of the lending partners that we work with have
started to recommend that you should be looking for a reduction closer to1% right around 1% it could be worthwhile, but everyone’s
situation is different so we’re gonna run that. Now first and foremost, why do you want to refinance and you know obviously
to save money but that’s not the only reason, there’s 3 main
reasons why people usually choose to refinance their home. First as we just
touched on is to save money so it’s going to be to lower their interest rate
and their payment, put more money in their pocket every single
month and obviously that is a great reason. Number two could be to shorten
the term of your loan. You may have been in your house 5, 6, 7 years now,
your income could have gone up and it now may be a great time for you to
refinance from a 30-year mortgage into a 15-year mortgage so you’re going to be
paying off that principal balance even quicker. The third most common reason
people refinance is to take cash out maybe for home improvements, a project it
could be for college, any reason, consolidate debt, anything along those
lines and there could also be a reason for that, but if you find yourself in one
of those positions where you’re considering the refinance it’s important
to keep in mind how much is that refinance going to cost you because
there are going to be fees involved. Typically those fees can run you know
2% to 3% of the loan balance so if you have, if you’re refinancing
$300,000 for instance then fees associated with that refinance could be
anywhere from $6,000 to $9,000 dollars so that’s obviously a big chunk
of money that it’s going to cost you to actually do the refi. The other
option is that lenders will often do a no-cost refi, but you’ve really got to
look at that carefully because in order for them to do a no-cost refi it doesn’t
mean it’s at no cost. There’s absolutely a cost involved it’s
just you’re not paying them upfront. You’re either going to pay them by them
including those costs in the new loan amount number one
or they’re going to have a slightly higher interest rate in order for those
fees to be recovered. So how do you know if you should
refinance or not? Well a lot of that comes down to what your longer-term
plans are, your objectives, and what your break-even point is. Here’s what I
mean by the break-even point. Say you’re at a rate now and if you refinance
you’re going to save yourself $250 dollars a month in your mortgage payment.
That’s great $250 dollars, but let’s
say it’s going to cost you $10,000 dollars to complete that refinance. What
you would then want to do is take $10,000 and divide it by $250, okay and it’s whatever the cost and or savings is going to be
in your situation so you take the cost and you divide it
by the monthly savings. That number is going to give you the number of months
it’s going to take for you to break even on that refinance. So if that number
comes out to 60, 5 years. So it’s going to take you 5 years before you
actually start saving money. if you you know hopefully that makes sense to
you because that’s the time that the costs will have been paid for by the
savings. So then you have to look at what are your objectives. Do you
think you’re going to be in your home for another 5 years.
You know if right now maybe you have a young family and it’s growing and you
might be needing more space in the next 2 or 3 years then know it’s
probably not a good idea for you to refinance. It’s going to cost you and you’re
not going to recover all of those through benefits, but if you’re in your home and
there’s no reason for you to go anywhere, and you don’t foresee any changes for
the next 5, 6, 7 years whatever that timeframe might be, then yes, it
could be a good time for you to refinance. Only you are going to know
that so again, do that calculation, total cost of the refi divided by the monthly
savings is going to give you the number of months to break even. Now I know this
can get a little bit confusing. If you have any questions about that yourself or want to run some numbers, or run through
a scenario, we’re happy to do that with you and give you some ideas, and
maybe even refer you to a lender, that can provide you with an exact cost
estimate and savings opportunity for your specific situation. If that would be
of interest shoot me an email [email protected]
or give me a call 888-447-9650 and I would be happy to run through those scenarios with you and hopefully provide you with
the information you need to know if it’s something that you should be looking at
right now

Paul Whisler

2 Comments

  1. This this my question instead of refinancing about to pay off your house or principal faster , can’t you just double up on payments ?

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