When Should You Refinance a Mortgage? - Joel Richardson, My Finance Team

When Should You Refinance a Mortgage?

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At what point is it worth it to refinance? 

When mortgage rates decline, you may wonder if you should consider refinancing your mortgage. There are a few things to evaluate to help you decide if to refinance your mortgage.
What does refinance your mortgage mean?
Refinancing your mortgage means replacing your existing mortgage with a new one. Typically, this is done when more favorable terms are available. The most common reasons to refinance are:
  • Lowering your interest rate
  • Reducing your monthly payment
  • Shortening your loan term
  • Accessing Cash
What kind of refinancing Options are available?
 Traditional refinance (Rate and term refinance)
If you want to lower your payment and your home equity is stable or has risen since you first took out your mortgage, this refinance allows you to reduce your interest rate and shorten your term or get out of mortgage insurance if you have it.
Cashout refinance
If your home equity has risen, a cash-out mortgage enables you to turn some of it into cash, which can be used to pay off high-cost debt, pay for college, make a down payment on an investment property, or even pay medical expenses.
Owelty
An owelty lien facilitates an owelty refinance. Parties can use this tool in situations like divorce or inheritance, where one party must refinance the property to pay the departing spouse or owner their share of equity.
Renovation/Construction
A renovation or construction refinance can leverage your home equity while adding value to your existing home. If you have a home improvement or remodeling project but have the cash to pay for it, this might be a viable way to accomplish those more expensive projects.
What are the steps of a refinance?
Like a mortgage, a homebuyer applies for a new loan and goes through the underwriting process, which may or may not include a new appraisal. Once approved, the closing is to pay off the old loan with the new one.
What is the cost involved?
The fees charged to refinance a home loan include a possible appraisal fee, attorney fees, title search and insurance, lender origination fees, survey fees, recording fees, and credit check fees. In some cases, it may be worth considering if there are lender credits that can cover your costs for a slightly higher rate.
Is it worth it to refinance?
It’s essential to ask your lender to do a break-even analysis. You will evaluate the overall costs against how long you intend to stay in the house you are considering refinancing. If the financial benefit is lower than the refinancing costs, it is not worth it.
Refinancing can provide significant monthly cost savings. However, it’s essential to evaluate how the costs will add up and whether it is financially advantageous to do so. Contact us now with any questions you have about refinancing or home finance.