Should I Refinance?

Clearly, there are many benefits to refinancing, especially considering today's record-breaking interest rates. But given your specific circumstances, will refinancing really save you money?

In most cases, it financially pays to refinance your mortgage if you can lower your interest rate, shorten the term of your loan, or keep the property (and the loan) long enough to recoup the costs of refinancing.

To figure out whether you will save money by refinancing, you should consider the three questions below.

An Allpointe Mortgage Advisor is always available at
866-255-3535 to help you answer your questions.

Any time you refinance a mortgage, there will be costs associated with the process. Even if you go with your current lender, you will need to pay for costs incurred by the appraiser, Title Company and closing agent. You need to itemize all the expenses involved in the refinance (including income taxes to be paid because of reduced interest deductions), estimate your new monthly payments, and compare it to what you are currently paying. Then you can figure out when you will break even.

For example, if you save $1,500 a year by refinancing, but it costs you $4,500 in taxes and fees, you will have to stay at your current home more than three years to realize any savings. If you are not planning on staying at your current home long enough to break even, then refinancing may not be right for you.

2. How much is already paid off on my current mortgage?

If you've been paying your present mortgage for a number of years, deciding whether or not to refinance is a little more complicated. You may have paid off a substantial part of the interest you owe on the original loan and have begun to chip away at the principal.

For instance, if you have 20 years of payments left on your original 30-year $200,000 loan, and can reduce the interest rate from 8.5% to an amazing 4% by refinancing for another 30 years, you could still lose tens of thousands of dollars. When you refinance—which means you are taking a new loan—the bulk of your monthly payment once again goes toward the interest.

3. Will I benefit from a different type of mortgage?

You may also want to compare which type of loan is right for you compared to your current loan. You can arrange financing to switch from one Fixed Rate loan to another but at a lower rate, or from an Adjustable Rate loan to a Fixed Rate.

There are benefits for both. For instance, if you refinanced a $200,000 Fixed Rate Mortgage with a term of 30 years at 6.25% to an ARM at 5.0%, you could save over $150 a month. However, over the 30 year term, the total payment of the Fixed Rate Mortgage is tens of thousands dollars less than that of the ARM. In the end it is the choice that you will have to make—do you want to save every month or would you like to save over the long run?

You have done the research, crunched the numbers, and are feeling confident that refinancing is the right decision for you. Now what? How do you begin the process of refinancing your home?

Call an Allpointe Mortgage Advisor at 866-255-3535 to start the process today and learn the Steps to refinancing your home.