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Frank Rexford, CMPS
Frank Rexford NMLS ID# 119234 |
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You may have heard the old rule of thumb that says you should not refinance your mortgage unless your new rate will be 2% lower than your current rate. If you follow this rule you could be making a big mistake. The true determination of whether refinancing makes sense is based on a simple calculation of how long it will take for you to recoup your closing costs. That's it. Here is the process to use when trying to decide if refinancing is right for you: Step 1 - determine what your total closing costs will be to refinance. Step 2 - determine the new rate you will qualify for. This part of the calculation is not as straightforward as it was in the past. In today's world of risk-priced interest rates, your new interest rate will be impacted by multiple factors--such as your credit score, the new mortgage amount vs. your home's value, whether or not you take cash out as part of the refinance, the loan size, property type, and more. Step 3 - determine how much you will save as a result of the new lower interest rate and payment. Step 4 - divide the closing costs you must pay to refinance by the monthly savings that will result. And this will tell you the number of months it will take to recoup your expenses. For example, if it costs you $4000 to refinance your mortgage, and you save $200 per month at the new lower rate, it will take you 20 months to recoup, or save back your closing costs. And so 20 months into the future is the point at which you will actually begin to save money. So you really need to have a good idea of how long you will be in your home to make an intelligently evaluated refinancing decision. That’s really all there is to deciding if mortgage refinancing makes sense for your financial situation. There are of course other reasons for refinancing your mortgage even if your monthly payment does not go down - such as refinancing to take equity out of your home in order to consolodate debt or to pay for home improvements, or even to convert an interest-only mortgage into one that will amortize - and be paid off on a schedule! I can make all of these calculations for you with a brief consultation. Please call me for a free analysis of your refinancing options. Let me guide you to the very best refinanced loan. I am committed to making it stress-free for you to reduce your interest rate and monthly payment. And if you have concerns about re-starting another 30 year payment schedule, we have the option of setting the term of your new mortgage at 40, 30, 25, 20, 15, or even 10 years.
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