How to Know When to Refinance Your Mortgage

Factors to consider when deciding to refinance

MortgageDepot has built a reputation of serving the needs of the borrowers who depend upon us for mortgage financing. A common concern among homeowners relates to refinancing an existing mortgage.

Factors to take into consideration when deciding to refinance

We look at several factors as indicating whether a homeowner should be encouraged to refinance an existing mortgage. Key factors we look at include the following:

• Reason given by a homeowner for wanting to refinance, such as lowering payments, consolidating outstanding debt or accessing equity in the home for college tuition, a business opportunity or other use.
• Interest rate for which a borrower would qualify under lender guidelines.
• Length of time a borrower intends to continue owning the home.
• Amount of closing costs for the refinance and how long it will take for the borrower to recoup them.

All of the factors should be taken into consideration in order to make the right decision. For example, looking only at the reduction in a borrower’s monthly payment without considering the added expense of the closing costs can be misleading.

Recouping closing costs

Closing costs charged by lenders may range from 3% of the loan amount on the low end to as much as 6%. These expenses add to the cost of the loan, so a borrower needs to know how long it will take to recoup them based upon the savings realized in the monthly mortgage payment.

A borrower does not begin actually saving money until the closing costs have been recouped. For example, a borrower pays $3,000 in closing costs to refinance a mortgage with a lower interest rate resulting in a $200 a month savings. It will take 15 months before the cost of refinancing is recouped and the borrower begins to realize an actual savings.

Getting sound advice about refinancing a mortgage

Homeowners uncertain about whether to refinance an existing mortgage rely upon the trusted advice and guidance of our loan officers. We review all of the factors to guide homeowners through the decision-making process, and then work with them to find a lender offering the best terms.

Contact one of our loan officers to learn more information about refinancing a mortgage.