Should I refinance?

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As you can probably imagine, I’ve heard this question a lot lately. It is a great question – when should one consider refinancing their mortgage?

The first step is to know your current interest rate. If the available rate is a half point lower than your current interest rate, it is worth a 5 minute call to your mortgage consultant. That is all it takes – 5 minutes and you’ll know!

In order to run a quick refinance scenario, I need the following details in order to provide an accurate evaluation of your mortgage options:

  • original loan amount
  • interest rate
  • type of loan
  • closing date

Once those answers are provided, I can run a quick scenario to let you know a new monthly payment, closing costs, and the break even point* on the new loan.

* – “break even point” is the closing costs needed to refinance divided by the monthly savings. That number shows how many months it would take to make back the money it costs to complete the refinance.

Now for the most important question of all – how long do you plan to remain in the home? Why is this question so important – well, if you know how long you plan to remain in the home AND then compare that time line to the break even point, it becomes clear pretty quickly whether or not it makes sense to refinance.

Remember, most people believe “should I refinance” is the most important question to answer. Knowing how long you plan to stay in the home is just as important.  Saving money is great, but not if it doesn’t make sense in the long run. To ensure it is the best situation for you, make sure to know “how much” you’ll save AND “how long” you’ll be saving it.

“Should I refinance”, yes that question has become about as common as “are we there yet” on road trips! If you’d like to know the answer to that question, you know how to find me.

Even though I’ve been asked that question a lot recently, I promise I have a much better disposition than Homer does handling repeated questions!

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2 Responses to “Should I refinance?”

  1. Rich Lee Says:

    Clay,

    I like how you explain how to figure out if you should refinance. For the investors out there, they should also take a look at the opportunity cost of the money they have to use to pay their closing costs.

    These days, I’m hearing that many can’t refinance so the question is also, “Can I refinance?”.

    Cheers,

    Rich

  2. Clay Says:

    Good point Rich, but you won’t know “if you can” until the appraisal is ordered and one moves forward with the refi. That is why “should I” still comes first.

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