Why you shouldn't refinance your mortgage.

It seems right now that everyone and their dog is refinancing their mortgage.  Almost everyone with a rate over 6% has a mailbox full of offers to refinance.

While for many borrowers refinancing is a great idea, it is important to do the math first.  Most financial people claim that if you don't save two percentage points you shouldn't refinance.  This is true for some borrowers but not for others.  Borrowers with large mortgages can save money with less than one percentage point rate reduction while borrowers with small loans may not be saving money by reducing their rate by four points.

The key to the equation is calculating the cost of refinancing and comparing that to the savings of the interest rate reduction.  The homeowner must decide based on their own circumstances when a refinance is worth it.  For instance, one homeowner may look at increasing their loan balance by $3,500 in order to save $100 a month as a great deal and another may not.  A borrower who plans on staying in their home for ten years would likely save $8,500 by refinancing based on this scenario but if they sell their house in a year the refinance will cost them about $2.300.

Ultimately, every situation is unique.  The best thing to do, is talk to a couple of mortgage professionals and find out how a new loan would stack up against the current one.   Tell your mortgage person how long you plan on living in the house, when you would like to have it paid off and  about any major events in your financial future so that they can tailor a mortgage to fit your needs.

Bryan J May
817-929-3584