Refinance Your Mortgage

Mortgage rates are around record lows. Is it time for you to refinance your home loan? The decision is not a simple slam dunk. Here are three questions to ask yourself first:

1. How long do you intend to be in your home?

Refinancing your mortgage costs money.  If you are planning to move in the next three years, the savings may be minimal. You may not live in your home long enough to cover the costs of getting the new loan. Instead, focus on getting in the best shape financially through paying bills on time, keeping other debt low and saving for the transition.  If you are going to be there for over 3 years, the cost makes sense both in the short & long term.

2. Where does your mortgage stand now?   

Beyond your current interest rate, consider your principal balance, payment amount and the time left on your loan. If your principal balance is low, you may not gain from a lower interest rate because most of your monthly payment is going to paying down the principal, not toward interest.

In the scenario above however, in taking advantage of a refinance you could pay off your home exponentially faster!  Lower rate, and converting your 30 year term to a 10 may make both short and loan term sense.

Flipside:

If your interest rate is significantly higher than what you’d get through refinancing — say 4% or 5 % — then a lower rate may save you money.

3. Do you have the money, time and credit history to refinance?

Closing costs are an integral part of the mortgage process. They are due when you finalize or “close” your loan. These fees include mortgage application fee, appraisal, attorney’s fee, title insurance and other charges. Closing fees vary by state, loan type and mortgage lender, but the average cost of refinancing is around $5,000(varies on lenders program.)  Run the numbers to see.

Refinancing is time-consuming. At the very least, you need to share up to three years of taxes, a current pay stub and a net worth statement. A mortgage provider may request even more paperwork. 

You need a good credit score. This may not be the year for you to refinance, even with low rates. The past year has wreaked havoc on many people’s finances. If your debt is high versus your income or you have been late with payments due to the pandemic, you may not qualify for great rates. Get your financial house in order and then apply for a new mortgage. 

These 3 questions should be leading to look at your entire financial picture.  When we look at our picture, it should lead us to set real, tangible goals.  You should ultimately be asking, what does my financial picture look like at the end of the mortgage?  That is a question that needs to be answered today!

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