Should I Refinance? The Answer is Not Always Yes Roger Odoardi If you’re a borrower considering refinancing your mortgage, it’s important not to simply dive into the process without giving the decision some due diligence. Too often when a borrower asks a lender the question: “should I refinance?” the response is an emphatic “Yes” or “Absolutely.” But rather than rushing into refinancing, it’s critical you approach the subject as meticulously as possible, with much thought and consideration. Take your time and remember: Your decision to refinance should be uniquely your own — nobody else’s. Every Borrower is Unique Every borrower’s needs are different when it comes to refinancing their mortgage. Some borrowers choose to refinance in order to cash in on a better interest rate. Some want to refinance to free up a little cash to pay for things like college tuition. Others simply want to put themselves in the best possible financial situation. No matter the reasoning, it’s important to ask yourself this one very pointed question before making the decision to refinance: Is it worth it? When is Refinancing Worth it? Refinancing is only worth it if by doing so you put yourself in a more positive financial position as a homeowner. Ultimately it depends on the individual intentions of the homeowner (i.e. how much longer do you expect to own the home). Here are a few common scenarios of when refinancing may be worth it. No Closing Cost Refinancing – If a broker can secure you no closing cost refinance that will drop your interest rate by ¼ to ½ percent, then it’s definitely worth it. The benefit of refinancing in this scenario is no money down at closing and the long-term savings experienced in the lower monthly payments, which in some cases could be a savings of $100 to $200 a month. A homeowner who intends on being in their home for at least the next 2-5 years is ideal for this type of refinancing option. Regular refinancing – If you’re planning long term with full intentions of owning the home for many years to come, a regular refinancing option may make the most sense. This type of refinancing option typically involves closing costs, which can be rolled in to the loan. One major benefit of this option is that it more than likely involves a broker securing you the lowest possible interest rate. If you can drop your interest rate by a point and keep the term of the mortgage the same, the savings will be realized for years to come. A lot of borrowers assume that when they refinance they are extending the life of the loan, meaning the four years they already have into their original 30-year mortgage are reset. This is not necessarily true. These days brokers are able to get creative with loan options for lengths of anywhere from eight to 30 years. If you don’t want to reset the clock on your mortgage, you don’t have to. Cash-out refinancing – Borrowers with equity in their homes who need to come up with some cash to pay for things like their kid’s college tuition or wedding should speak with a broker about pulling some of that equity out of their home. A cash-out refinancing may put some money in your bank account, however it may also end up extending the life of your loan. Should I Refinance When Interest Rates Are Low? Borrowers who purchased their home a few years ago, put less than 20% down and who have improved their financial situation could potentially shave money off their monthly mortgage payment by refinancing. A few years of mortgage payments means a few years of appreciation, which means more equity in your house. What’s more, your credit has likely improved from the few years of on-time mortgage payments making it more likely that a mortgage broker can lower your interest rate while reducing or eliminating PMI, even if you don’t have 20% equity yet. Of course, this all depends upon your financial situation. When is Refinancing NOT Worth It? Predatory loan officers will attempt to convince you that refinancing is always worth it. Don’t let someone strong arm you into refinancing if you don’t feel there is enough benefit. For example, if you are refinancing and the only positive factor is a drop in your rate by .125%, this type of refinance will do very little to improve your financial situation and the cost of the refinance will most likely outweigh the benefit. At Blue Water Mortgage, we have helped countless borrowers figure out a refinancing plan that makes the most sense for them. If you’re considering refinancing but just aren’t quite sure, we’ve created a Home Refinance Loan Checklist to help steer you in the right direction. Don’t hesitate to contact us with any questions you have about your refinancing options. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.