|Should you refinance your mortgage
Julie Garton-Good, GRI, DREI
Are you considering refinancing your home to free up cash or maybe to get
the monthly payment lower? It can make good financial sense if it's done for the
First, determine what you want to accomplish by refinancing. It makes good
sense to refinance if you'll lower the interest rate on the mortgage (from
thirty to fifteen years), or move from an unpredictable adjustable rate into a
Before you make a decision, ask yourself these questions:
First, how long do you plan to keep the loan and the property? It makes
little sense to spend money refinancing if you're not able to recover the costs
of closing the new loan (ask your lender to figure out how long it will take to
recover the cost of refinancing before you make application).
Second, if you're pulling cash out, will the money be used to good
advantage? Since the equity in your home is like a savings account, using
precious funds to purchase short-lived disposable goods may not be a good
financial move. One good use for the cash might be to pay off non-deductible
consumer interest or purchase other investments that can create a nest egg for
The lender may ask you if you want to pay additional discount points and
fees to obtain a lower interest rate when refinancing ( a discount point is
equal to one percent of the amount financed and is used to create a higher
financial yield to the lender). To answer the lender's question, you'll need to
know how long you plan to keep the loan.
Here's a general rule of thumb you can use:
It's best to keep closing costs low if you'll own the house only a short
time--but it may be financially wise to pay more discount points to buy-down or
lower the interest rate if you plan to keep the property for an extended period
of time. This strategy can save you thousands of dollars in interest over the
life of the loan.
Don't forget to shop first with the lender who holds the existing mortgage.
It's good business for lenders to keep their existing customers happy instead of
trying replace them. He or she may be eager to keep your business by offering
reduced fees and competitive interest rates. Don't be afraid to ask what kinds
of concessions the lender is willing to make to keep you from going elsewhere.
Remember, home ownership can be fun and financially rewarding!