When to refi

Typically homeowners will refinance their current mortgage for one of two reasons: to get a lower rate and payment or to cash out on some equity. Since rates are so low now I'll only discuss the first. The first step when thinking about a refi is to see what your loan characteristics are currently. This is the rate, the term length, whether there is mortgage insurance, loan amount, any seceondary financing and whether there are escrow accounts or not. Now that you have this info it's time to contact a lender and get a loan quote.

The lender will need the above info as well as your plans for staying in the house. Do you plan on being there 5 years, 10 years, forever? Or maybe you plan to move in 3 years but will rent it out at that point. This gives a time frame for comparing refinancing vs not refinancing.

The lender can then give an estimate of where the rates and terms are for available financing given your scenario. There are closing costs involved in refinancing so it's good to find the 'break even point'. This is when the interest you save each month is cumulatively enough to reach the amount of closing costs you pay.

For example: Let's say closing costs are $5,000 and the interest savings per month is $200. You'd need to keep the loan for $5,000/$200 = 25 months for the refinance to be worth it.

As you'll be estimating how long you'll be in the house and can't name a specific month, I like to give a cushion of 6 months to a year when deciding whether it's worth it. In the above example, if you said you'd be in the house 2 1/2 years, I'd advise that it's probably not worth it as you may very well move before the break even point. Alternatively if you planned on staying 3 years, I'd say it'd be worth refinancing then.

There are a few more steps and info needed to get a proper rate quote from the lender, but once that's accomplished we'd go through the above process. If you think your rate may be a little high, give me a call. I'd be happy to discuss.
-Bill 512-844-1910
billconover@america-lending.com