When should you REFINANCE?

When should you refinance your home? There are typically 4 times that you should consider refinancing your home and in this video I discuss those in more detail.

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When Should I Refinance My Mortgage?

With interest rates at near 3 year lows, the question “when should I refinance” comes up quite a bit. When that question comes up, I often ask clients “what’s your goal” and more often that not, they aren’t sure of their goals and so it becomes a difficult question to answer. If your plan is to be in your home forever or at least keep it as an investment property later down the road then getting a lower interest rate will likely pay off but if you are planning on selling your home in a short period of time or really not sure what the future holds then make sure you consider all options because a lot of times people end up paying more money than the cost savings they receive by refinancing.

In my experience there are 4 times when you should SERIOUSLY consider refinancing your home loan.

If you are getting out of an adjustable rate into a fixed rate loan.
If you are getting rid of PMI (mortgage insurance)
If you can lower your interest rate and the cost to do so makes financial sense.
If you are looking to potentially pull cash out to pay off existing debt and in turn will lower your total monthly payments.

If you are able to refinance out of an adjustable loan and get into a fixed rate loan to a payment where you are comfortable then I think it’s always a good thing to consider. In some cases, homeowners only plan on being in a home for a short period of time and in that case, a longer term loan may not make sense but more often that not I see a lot of homeowners stay longer in their homes than they ever intended and are in a position where they may have an adjustable loan coming due where the rate will adjust to a higher payment. In this case, refinancing is something you may want to consider.

Another scenario where it makes sense to refinance is when you have PMI on your current loan and you are now in a position where you have 20% equity in your home and you can refinance to get rid of the PMI. In most cases this will make sense but make sure you are looking at the cost and the savings to make informed decisions.

If you can lower your interest rate and the costs to refinance (appraisal, processing fees, lender fees, etc..) makes sense then it something you should consider. A quick example would be…….if it costs you $5K to refinance but you are only saving $100/month then it’s going to take you over 4 years to recoup your costs. If you know that you are planning on selling in a year then it’s likely not a good idea to refinance but on the other hand, if you can get away with a no cost refinance (where they are not adding it to the balance of your loan) and you can save money then it may be an option you should consider.

Lastly and probably the most common that I see is refinancing and pulling cash out to pay off existing debt. You still have to consider the fees that are being charged in order to refinance and make sure that it makes sense but if you can pay off debt and lower your total monthly payments then refinancing should be a consideration.

If you have additional questions about refinancing or have real estate related questions, please comment below or contact me directly.

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