That’s the question we’re being asked most often today. The answer is a question. What are you looking to accomplish by refinancing? What are your goals and priorities for refinancing? Is it to save money each month or to shorten the length of your mortgage? Do you need equity from your property for home improvements or college education?
These are important questions to ask yourself while your are considering your decision. The answers can greatly affect the type of mortgage that’s appropriate and even whether it makes financial sense or not. The old rule of thumb that you should drop 2% on your rate before refinancing only works in certain circumstances.
Saving years on your mortgage by converting to a 15 year fixed rate loan can save 10’s of thousands of dollars in interest even at the same or higher rate than an existing 30 year mortgage. The current wave of refinancing is seeing rates in the upper 5’s and low 6’s for 30 year fixed mortgages with 0 points and the upper 4’s and low 5’s for a 15 year fixed mortgage with 0 points.
So, does it make sense to refinance? The answer to the question of refinancing is always the same. Does it make economic sense? The only way to know that is to have your plans & goals in mind and review the numbers with a mortgage professional.
The three reasons clients most often will decide to make the move are: 1. To take cash (equity) for any number of reasons from home improvement to debt consolidation. If this is your goal sometimes a second mortgage or equity line of credit might be better. If your paying off a significant amount of debt or are consolidating loans you may save a great deal of money even though your not reducing the rate on your 1st mortgage tremendously, especially when you consider the added tax deductibility.
2. Save money each month. Our rule of thumb is simple here. Are you saving enough to cover the costs of a new loan in 2 to 3 years or less. If so it may make sense regardless of the interest rate differential .
3. Shorten the length of your mortgage. As we said before this can save you a significant amount of money and is always a worthwhile reason for refinancing. Once a decision has been reached, stick with it & shop until you find a source you’re are comfortable with.
Robert & Craig Winawer
