There are a number or reasons to consider refinancing a mortgage. On this page I share some of the most common reasons clients choose to refinance their mortgage as well as a number of considerations you should make in determining whether or not refinancing makes financial sense for you.
Many times client want to reduce their monthly payment to give them greater flexibility in their monthly budget.
However, when looking at refinancing, you want to make sure you are considering what is causing your payment to decrease. Is your payment decreasing because you are taking a longer term loan?
If that is the case, your overall cost to borrow may have actually increased. In some cases, you can refinance, keep a similar or shorter loan term and reduce your monthly payment.
Lower Interest Rate and/or
Shorten Loan Term
If interest rates are lower than when you took your original mortgage out, you may be able to refinance your loan and decrease your interest rate.
The shorter a loan term, generally the more favorable the interest rate you will receive. One way to potentially decrease your interest rate is to consider a shorter loan term.
Keep in mind, the shorter your loan term, the higher your monthly payment will typically be. A shorter loan term will allow you to pay your mortgage off faster and reduce your overall cost to borrow.
Consolidate Debt and/or
Many clients will elect to refinance a mortgage to borrow equity from their home to consolidate other debts (such as credit cards, student loans and home equity loans). Refinancing these debts with equity from your current home can make financial sense for you and help to reduce your overall cost to borrow.
If you are considering making renovations and/or improvements to your home, refinancing may provide you with the cash you need to complete the improvements you are hoping to make.
While it is possible to shorten your loan term and decrease your monthly payment, you generally would need to see a strong difference between your current interest rate and the interest rate on your new loan for that to be possible.
When looking at refinancing, there are some other factors you will want to consider as well. You will also want to look at what your closing cost are, how much you would save and how long it would take for you to make back what it cost you. In some cases, even though current interest rates may be lower, it may not make sense to refinance. We will help you review the numbers in detail to make sure refinancing makes sense. If it doesn’t, we will tell you. The last thing we want you to do is refinance your home only to receive no financial benefit.
What Are Your Closing Cost?
Often times clients will look only at interest rate and will not take into consideration what it cost to take the loan out. When reviewing whether or not it makes sense to refinance.
You should consider the following:
- What are your closing cost?
- What am I saving in my monthly payment?
- How long will it take me to make my cost back?
- What is the term of my new mortgage compared to my current mortgage?
How Long Do You Plan to Stay?
This is probably the biggest factor that is most over looked by most clients. Nothing makes worse financial sense then to pay closing cost to refinance a mortgage only to turn around and sell the home within a short period of time after you refinance.
If you are unsure if you will stay in the home long term, you may want to consider a mortgage that has lender paid closing cost. This may allow you to refinance to a lower rate while avoiding paying closing cost.
What Are Your Overall Cost?
Just because your interest rate on the new loan may be lower, it may not necessarily mean that your long term cost to borrow has decreased.
Your overall cost to borrow are important to understand. You would want any potential refinance to put you in a better overall financial position.
The good news is you don’t have to do all of this on your own. Our team will work with you to do a careful analysis of the potential benefits of refinancing. If it does not make sense for you to refinance your mortgage, we will tell you. If it does make sense, we will show you specifically why we believe you will benefit from refinancing.
There is no cost or obligation for us to review your options with you. Feel free to complete our online application to allow us to help you determine your options.