Refinance your mortgage? When considering a refi, you’ll want to take stock of your particular situation—not just the interest rate environment.
Refi considerations: Clearing debt, moving and break-even point
In preparation for a refinance, you’ll want to gather a clear picture of your financial goals as well as your expectations for how long you intend to live in your home. For example, is it financially prudent to obtain a new 30-year refinance mortgage and further extend interest payments deep into the future? What about your desire to own the property outright? 15-year mortgage refi rates could speed up your path to paying off your loan. Have you established a time horizon for paying off the interest + principal and clearing away all mortgage debt?
Also, think about how long you intend to live in your home before selling the property. Two years? Five years? Ten years? Given the required closing costs and other associated fees that are frequently folded into your monthly mortgage payments, you may be on the hook for higher monthly payments during the first couple years of your refinance. In other words, despite the appeal of a low interest rate, if your break-even point does not occur in the period before you sell your home, you will be denied an opportunity to recoup any savings.
Make sure you have access to an industry-leading tool like the Guaranteed Rate refinance calculator to help you decide if refinancing your home makes sound financial sense.
Other refinance aspects to consider
Besides mortgage rates, there are charges and fees that must be considered when determining the costs of a refinance.
Closing costs are unavoidable, even for refinances. Most experts agree that borrowers should expect to pay about 2-5% of the remaining principal in closing costs.
Some lenders may allow borrowers to pay these costs during closing, but it’s more typical to have these charges rolled into your monthly payments and reflected in your APR. According to recent reports, the average closing costs for a refinance is over $4,300.
The term “closing costs” refers to a number of fees that are part of the mortgage process. Typically, they include some or all of the following:
- Mortgage application fee, Appraisal fee, Loan recording fees, Attorney and closing fees
- Loan origination fee, Survey fee, Discount points, Title fees
If you need assistance refinancing your mortgage or are considering any type of home loan products, contact the local Guaranteed Rate office and they will help guide you through the process. Liz Ryan NMLS ID: 441907 – NMLS ID #2611 (For licensing information, go to www.nmlsconsumeraccess.org) Equal Housing Lender. Conditions may apply.