Should I Refinance my Mortgage?

Lowering your interest expense is smart financial discipline, just be aware of the cost to lower your interest.  In refinancing your mortgage there will be some expense.  The lender, government and third party vendors must be paid.  The question then becomes, “how much does this refinance cost and how much does my rate need to drop to justify the expense of a refinance?”  First you need to determine:

·         Current loan balance

·         Current principal and interest (P&I) payment

·         Estimated cost to refinance

Ask your lender for an estimate to show the expense for your specific loan and to quote you the prevailing interest rate.  Did you know there are at least three options when paying for your refinance?

1)      You can roll the closing costs into the loan amount if you have enough equity in your home.  This is the most common option for most homeowners.

2)      You can pay the costs out of pocket at closing.  When you want to avoid increasing your loan amount and you have liquid funds to pay the costs, this may be a good option.

3)      Lender-Funded refinances can be very attractive to pay for all or some portion of the refinance costs.  The lender funded option results in a higher rate but lower cost to the borrower.  This can be very appealing when interest rates are expected to decrease.  For example:  If your current rate is 8% and you can refinance into 7% with no cost of equity or cash, this would be a smart decision.

Every family's situation is unique.  We recommend that you collect the information referenced above, then reach out to a trusted professional.  Share with them your interests and objectives and ask them to provide your options for a refinance.  Just remember, there is no such thing as a “no cost” refinance; there is always a cost, make sure you understand how the costs are being paid.

Here are a few more considerations:

·         When refinancing an ARM (adjustable rate mortgage) there are additional factors to consider.  Your goal might be to convert to a fixed rate instead of a lower interest rate.

·         Size Matters; Large loan amounts will recoup your closing cost investment quicker than small loan amounts. 

·         If you expect the mortgage to be paid off in 12 months or less, you probably should not refinance.

·         Rarely does it make sense to pay discount points on a refinance.

Send a message to AmeliaLending@cchl.com with your questions.  We can provide the guidance you need.