As it turns out, many people who think they should refinance really shouldn’t; and many who should, don’t or can’t. The question homeowners should ask themselves is, “Does refinancing make sense and will we benefit?” Unfortunately there is no simple answer to that simple question. The answer depends on the current situation, which includes current interest rate, remaining loan term, type of loan, value of the home, short and long term plans for the home and many more unique factors.
The most common reason to refinance is lowering the monthly payment. Keeping in mind that there is cost to obtaining a new mortgage, the industry rule of thumb is, “If the cost of the refinance is recaptured in three years or less by the reduction in payment, it makes sense.” However, several other factors should be considered: how long do you plan to own the home? Would a 20 year or a 15 year loan term make more sense? Should you get something other than a fixed rate? Should you pay the closing costs up front, add them back to the new loan or have the lender pay them by accepting a somewhat higher- than-market interest rate? These are questions for the most common scenario.
What is YOUR situation? Do you have a rate over 5%? Do you have a second mortgage (HELOC)? Do you want to pay off your home more quickly? Do you have an FHA, Federal VA or USDA loan? There are streamline programs available for these. Do you plan to sell in a few years but still want take advantage of today’s low rates? Do you plan on turning your current home into a rental at some point?
The best way to determine whether refinancing is right for you is to speak with a mortgage loan officer. There is very little or no cost and minimal paperwork needed. And it could be very worthwhile: on a $200,000 loan lowering the rate from 6% to 4% reduces the monthly payment $244.27!
Like the wise old mortgage veteran said, “Kid, these rates won’t be this low forever!”
Article submitted by Neil Jensen (NMLS #62738) and Deena Jensen (NMLS #205436). They are co-owners of American Capital Mortgage with over 52 years combined experience helping people with home financing. Neil can be reached at 503-329-5622 and Deena can be reached at 503-320-1132 or visit www. amcapmortgagepdx.com to learn more.
