Is It Time To Refinance? Our Answer May Surprise Homeowners

Headlines warning homeowners to refinance now or risk missing out on record-low interest rates coupled with friends and neighbors gloating over newly lowered mortgage rates appear to offer only one option: Refinance now. To be honest, that may be the right way to go. However, at MortgageDepot, a mortgage broker company, our suggestion for homeowners is to take a deep breath, relax and read on to learn more about making an informed decision about refinancing.

Factors to consider about refinancing

Historically low interest rates are only one of the factors borrowers should take into consideration when trying to decide whether it makes sense to refinance. A few things to consider include the following:

• The rate offered by a lender compared to the rate a borrower currently has on a mortgage.
• Application fees, appraisal fees and other costs charged by the lender in addition to the rate of interest.
• The length of time a borrower plans to keep the home after refinancing.

Chances are that unless a homeowner has a mortgage that closed within the past six months, the rate will be higher that what lenders currently offer. However, the savings realized by refinancing could be diminished by closing costs.

Look at the overall cost of the loan

Closing costs can significantly reduce any savings refinancing provides to a borrower. Closing costs paid by borrowers to refinance include the following:

• Application fee.
• Appraisal fee.
• Inspection fee.
• Title charges.

Depending upon the terms of the loan paid through refinancing, any prepayment fees or penalties must be considered in order to determine the cost of refinancing to the borrower.

Simply because a loan has closing costs does not mean a borrower should avoid refinancing. Borrowers need to look at how long it will take to recoup the closing costs based upon the monthly savings in interest resulting from refinancing. For example, if refinancing saves a borrower $100 in interest each month and closing costs are $2,500, it will take the borrower 25 months to recoup the closing costs and begin benefiting from refinancing.

If the borrower in our example anticipates selling within two years, it may not pay to refinance. The reason is that a reduction in the interest rate would not offer any real savings to the borrower.

Speak to the mortgage experts

A borrower should get advice from mortgage experts about refinancing because there are many factors to consider beyond the few that we covered.

Arrange to speak to one of our experienced financing specialists by visiting MortgageDepot.com.