Refinancing your current mortgage
Not sure if refinancing will actually save you money or just be a waste of your time?
Several factors besides the difference in interest rates should be considered:
- How long have you had your current mortgage?
- When do plan to move out of your home?
- What’s more important — saving money or lowering your payment?
- When will a lower mortgage payment actually end up costing you more?
- How risk adverse are you?
- What are the tax implications of pulling money out of your home to pay off bills?
Our certified mortgage professionals have the tools to assist you in determining if refinancing makes sense for your specific situation.
The most common mistake we see made is so called mortgage “experts” getting a client to focus on a lower payment, but not explaining they’ll pay more in the long run.
What do we mean by that?
The most common method employed by so called mortgage experts to analyze whether a client should refinance or not, is to compare the cost of the refinance to the monthly savings.
Let’s say it costs $2400 to refinance and it will lower your payment by $200/month. Many “order-taker” mortgage people will calculate a break-even point by dividing the monthly savings into the cost. In our example, that number would be $2400 in costs divided by the monthly savings of $200 generating a break-even timeline of 12 months. So they’ll tell you that this is a good deal if you plan on staying in your home for at least the next 12 months.
Well that’s not the whole story. Mortgages are set up with the interest being front-loaded. What this means is that most of your initial mortgage payment goes towards interest and very little towards the balance of your loan. Over time though, less and less of your monthly payment goes towards interest and more goes towards paying down the principal. By the way, we can help you understand this by going over an amortization schedule.
So, if you’re 5 years into a 30 year mortgage, you’ve already paid a significant portion of the interest on your mortgage. Starting a brand new 30 year loan will not only stretch your remaining balance over a longer period of time (of course this will lower your monthly payment!), it will also start the clock all over again on that front-loaded interest.
The best way to analyze whether a refinance will really save you money, is to compare how much interest your current mortgage and the new refinance mortgage will each cost you over a specific period of time. If you plan to pay off your mortgage entirely, this period of time would be to the end of the mortgage term. When making this comparison, we also have to add the cost of the refinance to the analysis of the cost of the refinance mortgage. The lower number is the better option and often it really doesn’t make sense to refinance in this context.
Now, you may desire a lower mortgage payment because of a loss in household income or for some other reason, but you should still expect a mortgage expert to go over the extra cost of that decision so you know exactly what you’re getting yourself into.
Just for fun, you may want to run the above questions & scenario by a call center order-taker to see how they respond before you contact us. We doubt their answers will be in the same league as those from our team of professionals.
One word of caution though, we’re not looking to give away all our answers for free and be turned into unpaid consultants. We trust that you’ll appreciate our expertise and it’ll earn your business.
We make a commitment to you to give you the personal attention you deserve and treat you with the respect due a valued customer. We also stay in touch with our clients after the refinance transaction, to make sure they’re kept abreast of future mortgage opportunities.
You can start the process by clicking on the green “Refinance” icon to the left and completing the questionnaire. You can also email or call us.