Questions to ask when refinancing

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In a recent post, we looked at the extension of the Making Homes Affordable loan program into June 2012. I mentioned the first step in the process is asking questions to see if a refinance is potentially a wise financial decision. The first thing I do when someone asks me whether or not a refinance makes sense is ask them these four questions:

  • What was the original loan amount?
  • What is the interest rate?
  • What is the type of loan?
  • When was the closing date?

With this information I can put together some rough refinance figures based on their current monthly payment, estimated closing costs, and estimated remaining principal balance.

These numbers won’t be exact, but the beauty of using these questions is my client will know in less than 5 minutes if it might be worth investing more time in trying to refinance their mortgage. If it looks like the numbers make sense, then we can proceed to completing a loan application, pulling credit, etc.

The fifth and final question is the most important one of all. Before I take a loan application, ask about income, equity in the property, or pull credit to start someone’s loan file, I always ask “how long do you plan to remain in the home?”

Again, this is the most important question to ask. Why? If the break even point (number of months it takes to make up the closing costs for the new loan) on refinancing the current mortgage is 3 years away, but you plan to sell within a year, why would you need to refinance your mortgage? It doesn’t make any sense to do it!

That is how I approach every potential client who is looking to refinance. I find out the current payment, potential new payment, how long it takes to break even, and how long one plans to stay in the home. No gimmicky sales pitches, just the facts and nothing else.

Thinking about whether or not a refinance might be right for you? If you want the facts, and only the facts, you know who to contact!

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