There are many considerations when it comes to answering this question. If the reason you want to refinance is to take out cash to pay off other debt, finance education, make improvements to your home, etc., then your reason for refinancing has less to do with improving the terms of your existing loan, and more to do with the “Why” behind your wanting or needing the money.
But, when it comes to improving the terms of your existing loan there are only a few things to consider, and most important is, how much will it cost, and how soon will I “breakeven” on the money I am spending to refinance. And it does not matter if you are writing a check for the costs, or financing the costs into the new loan resulting in a higher loan balance than the one you have today. Costs are costs, it’s your money, so be smart. If the lender is not capable of showing you a breakeven analysis, it’s simple to do on your own.
Just take your potential new total principal, interest and mortgage insurance payment (if you have one) and subtract it from your current principal, interest payment. That is your payment savings. Now add up all the non-recurring closing costs (leave out tax, insurance and pre-paid interest deposits), and divide that number by the payment savings; It looks something like this:
Non-Recurring Costs $3000 / $100 = 30 Months (2 ½ years) to break even on your cost investment. Only you can answer the question if this makes sense for you.
Other things to consider, is this a good time to shorten the term on your mortgage? In other words, could you go to a 25, 20, 15 or 10 year mortgage, and possibly still lower your payments, but even more important, pay that mortgage off sooner?
These are all scenarios a true professional can discuss with you. Our experience shows that those clients that save the most money and the most time, are those with the best plan. We would be happy to discuss what your plan could look like. Give us a call.
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