TO REFINANCE OR NOT? A QUESTION NOT ASKED OFTEN ENOUGH

As a consumer you are bombarded with solicitations to refinance, many of which sound amazingly good. But is a refinance truly in your best interest?

Following are some key points to consider before you jump on the refinance band wagon.

  • How long do you plan on remaining in your home, if it’s not long enough to outrun the closing costs being charged, don’t do it!
  • Regardless of how it’s sold to you, every refinance comes with costs. You may have no money out of pocket, but equity from your home is used to cover the cost of the refinance or the Lender charges a higher interest rate and covers the costs through a Lender credit
  • What are the costs? Don’t assume anything, always ask for a written closing cost estimate or loan estimate that breaks down line by line the fees being charged.
  • Are you paying an origination fee or any discount points to “buy” down the interest rate to the desirable rate being sold? The more the cost, the longer it will take to outrun them.
  • Is the interest rate you are being offered a fixed rate?
  • Are there any pre-payment penalties should you pay the new mortgage off before a set period of time?
  • Identify your purpose for doing a refinance – is it to lower your rate or to pay off debt?
  • Understand that if you are taking ANY cash out to pay off debt including 2nd mortgages taken out on your home after the purchase, you’ll be paying more for the refinance based on how the rate is priced. This is not always bad as your overall monthly cash outlay can be reduced significantly, however, if you don’t change your spending habits, you can actually put yourself into a worse situation as your mortgage payment goes up, your equity goes down as you use it to pay off consumer debt and your debt continues to accumulate resulting with an overall much higher monthly outlay then where you started.
  • Do you have less costly means of paying off debt such as a small personal loan or 401K loan?
  • You are in a conventional mortgage and your rate is good but you want to drop your PMI. You DO NOT need to refinance to do this, if your home has appreciated enough to provide adequate equity, you can have it dropped without refinancing.

There are so many more things to consider so seek a second or third opinion and then read everything that you receive from the Lender and question it to make sure you are getting what you think you are getting.

And remember, a mortgage is always about you, not the Lender, so do what is best for you!

Questions, give me a call at 360-459-1200!

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