To Re-fi or not to Re-fi, that is the Question

Q: " Interest rates have gone down since I got my mortgage a few years ago. How do you know when it makes sense to refinance?"

A: Homeowners refinance for many reasons. Common reasons include: the desire to change the type of mortgage you have (for example to go from an ARM to a fixed rate loan), the need to use the equity in your house for another expenditure (like a remodel or a child’s tuition), or simply to save money on your monthly payment. 

The formula to figure out whether a refinance will be favorable for you is quite simple. First, you need to figure out how long you plan to be in the house. Take the amount of your monthly savings with the new loan, and multiply it by the number of months you plan to be in the house. Compare this number to the fees that you will be charged for the refinance. If the fees are higher than the savings, then it may not be worthwhile to refinance at this time. Many people never get past the illusion that a lower monthly payment can create. Remember, you must consider the long-term equation.

It is always a good idea to consult an expert. Speak with your mortgage broker and ask him/her to lay out the comparison for you. If you don’t have a trusted broker, ask a friend for a referral, or ask us. We work with many trustworthy professionals.