Should You Refinance Your Mortgage?

You’ve been a happy homeowner for awhile now. Just like making the big decision to buy a home, it may be time for another big decision: should you refinance your mortgage?

Refinancing your mortgage sounds relatively easy. Reach out to a mortgage lender, complete an application, submit a few basic documents, and sign paperwork for the new loan, and it’s a smart financial move for many homeowners.

To help you decide whether it makes sense for you to refinance your mortgage, take a look at three primary reasons for refinancing:

1. You’ll lower your interest rate:
2. You’ll lower your monthly mortgage payments:
3. Shorter-term

 Lowering the interest rate on your mortgage can save you thousands of dollars throughout the life of your loan.

Interest rates for loans may feel like arbitrary numbers, but mortgage interest rates are important because they can increase or decrease the cost of your home.

For example, if you took out a 30-year mortgage for $400,000 at a 4.50% interest rate, your monthly loan only payment is $2,026.74, and you would pay $329,627 in interest during the life of the loan.

If the interest rate were to drop to 3.50%, then your payment would drop to $1,796.18, and you would pay $246,624 in interest over the life of the loan.

That is a savings of  $83,303.

Let’s make it even better.  Let us assume you are at 4.50% today on a 30-year fixed with 26-years left. If you refinanced to a new 20-year at 3.00%. The total in interest paid over the 20-year new loan is only $132,414!

Securing a lower monthly payment means that you’ll be able to save money on your mortgage bill every month, and use that money for something else.

Shortening the term of your loan, like going from a 30-year amortization schedule to a 20-year amortization schedule will save a ton of interest, and heck, maybe now the home will be paid off by the time you retire?

Refinancing Closing Costs and Fees

Just like all mortgage loans, there are closing costs associated with getting the loan. Everyone complains about closing costs, but  before getting too freaked out about the costs alone, keep in mind the overall savings and betterment of your situation.  For example, if closing costs are $7,000, that stinks, but if you are lowering your rate, and chopping 6-years off the loan with a shorter term that saves you $83,000…  Most people would gladly pay $7,000 to get $83,000. Plus, the costs are almost always rolled into the new loan, so it is not an out-of-pocket cost you need to come up with.

Interest Rate and Closing Costs go Hand in Hand

Did you know you can select any interest rate you want?  Did you know you can select any closing costs you want? Do you know that lower interest rates come with the highest closing costs?  Did you know that low closing costs, or no closing cost loans comes with higher interest rates?

Unfortunately, to get the best refinance deal, it isn’t as simple as asking “What is your rate today” – You have a few decisions to make about interest rates and closing costs options. Any good Mortgage Loan Officer will be able to assist you with various interest rate and closing cost options to determine which loan option is best for you.

The Bottom line

Refinancing your mortgage is a big decision. After exploring your options and experimenting with the numbers, you’ll be ready to make an informed decision that takes into account your short-term, long-term, payment, and equity objectives.

But it really is this simple:

• What are your costs
• What are your savings
• Will you be there long-enough to reap the benefits after factoring costs

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