It’s Time to Think About Refinancing Your Mortgage (Again)

Pros and Cons of Refinancing…

With interest rates near record lows, you may be considering a refinance, by obtaining a new mortgage to replace your current one. In the weeks and months ahead the opportunity to refinance may be even better. Here are a few tips to figure out if you should refinance your mortgage…

Upsides

  • Lower mortgage payment. With today’s rates nearing lower than the already rock-bottom rates of 18 months ago, someone who borrows $100,000 will save themselves more than $20,000 in interest over the life of a 30-year fixed-rate loan. Use the savings on your payments for other investments that will generate higher returns or apply the savings towards principal and shorten the term of your loan by several years.
  • Shorten loan period. In addition to lowering your rate, consider shortening the length of your loan. In the first years of a 30-year loan, you’re paying almost all interest—it’s not until the later years that you start paying principal. With rates this low, you can often both lower your monthly payment and shorten the length of your loan, saving thousands in interest.
  • Escape adjustable rate mortgages including Helocs. Refinancing allows clients with adjustable rate mortgages (ARMs) to convert to fixed-rate loans, an advantage to the client even if you don’t save on the monthly payment immediately. If you have an ARM, refinancing to a 30-year fixed can not only lower your rate but dramatically improve the safety of your loan by eliminating the risk that your rate might increase. This includes combing 1st and 2nd
  • Cash in your pocket. If you have equity in your house, a cash-out refinance lets you pull out capital for productive uses.
  • Banish Private Mortgage Insurance (PMI). Low or zero down payment options can allow buyers to purchase a home with less than 20% down. Unfortunately, they usually require private mortgage insurance. PMI is designed to protect lenders from borrowers with a loan default risk. As the balance on a home decreases and the value of the home itself increases, borrowers may be able to cancel their PMI with a mortgage refinance loan if the values has increased significantly since the original purchase.
  • No Cost Options - Every mortgage has closing costs, a no cost option means you’ll take a slightly higher rate to cover costs associated with the loan.

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Downsides

  • Value concerns. The best rate requires an 80% or less loan to value (current balance/home value = 80% or less). If your home appraises lower than expected it will affect your loan structure and the appraisal fee is non-refundable.
  • Refinance costs are approximately $2800 -$3200. We offer no-cost options or you have the option of paying the closing cost out of pocket or add it to your loan balance.
  • Refinancing requires a new submission to the bank. If we’ve done a loan in the previous 2 years we can streamline the process by incorporating your previous file.
  • Little savings for those who have refinance within the last 18 months. Many people have already refinanced since then and might not save much by doing so again now. I welcome the opportunity to examine options.
  • A refinance restarts the clock. Consider how long you’ve have already paid on the original mortgage, how long you plan on remaining in the home. Some clients apply the month savings from the refinance to principal to shorten the loan term. A longer mortgage term nets you a bigger annual tax deduction.

I am here to answer any questions about your existing financing and the merits of refinancing. Please feel free to call or message me to discuss your opportunities!