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Refinance Decision Guide

Should I Refinance?

That depends…what do you have to gain? After all it will cost something to refinance.

Despite what you may hear in those radio ads there is no such thing as a no-cost refinance loan. While it is possible in many cases to roll the transaction costs into the loan amount or finance them by selecting a higher-than-market interest rate, there's no free loan, period.

That's because making a new loan requires the involvement of all the same service providers that played a role in helping you get your current loan: your lender's staff, an appraiser, a title insurance company, the credit reporting agency, just to name a few.

For more information about the myth of refinancing with no closing costs, click here.

So if you refinance you should get something valuable in return for the transaction costs that you'll be paying for, whether you're paying them up-front or as you go.

Reasons for Refinancing

The typical reasons for refinancing can include any or all of the following motivations:

Reduce your monthly payment
Change your loan term
Switch to a different type of rate and payment structure
Obtain cash out

Refinancing Decision Factors

When considering a refinance, the following factors will come in to play:

Feasibility. Can you (and your property) qualify for a refinance? Lenders have substantially changed their lending rules in the past couple of years. These rule changes might affect what you can qualify for in a refinance loan. Is your employment and income considered stable? How is your credit rating? Also, your property value may have declined to a level that no longer provides sufficient equity protection in the eyes of some lenders, while others may still consider your property value adequate, even if reduced.
Rates. If you do qualify, are favorable terms available? Rates are about as low today as they have been in several decades. Click here for current mortgage rates. If your current rate is significantly higher than today's market rates, it could make sense to pay for a new loan at a lower rate.
Risk. Do you currently have an adjustable rate loan that exposes you to an uncomfortably high level of risk, in terms of potential interest rate and payment increases? If so you might be willing to accept a higher rate and payment on a fixed rate loan in order to avoid the possibility of even higher rates in the future if you stay with your existing adjustable rate loan.
Thrift. Do you want to accelerate your loan payoff and look forward to being mortgage-free sooner rather than later? Reducing your mortgage term from 30 years to 20, 15 or even 10 years will allow you to do that on a scheduled basis. The rates on shorter-term loans are lower than on 30 year loans. Click here for current mortgage rates. Some people find that the lower rates and faster repayment fit well with their retirement plans and other financial goals.
Cash Needs. If you need cash for any reason, such as bill consolidation, home remodeling, college tuition, or whatever, your home equity may provide the cheapest or possibly the only source for these funds. Borrowing against home equity is subject to much more stringent requirements than those of a few years ago. But in some cases, such as with FHA loans, you can still borrow to a surprisingly high percentage of your home's value if you need to do so.

Considering a refinance? Contact us for friendly advice.