Are you looking to refinance your mortgage loan? Refinancing can save you thousands of dollars but it is NOT free and might not make sense. Everyone should not refinance their loan just because interest rates are a little lower. Let’s take a look at a few examples of what makes sense and what doesn’t!
The most basic concern when thinking about a Charlotte mortgage refinance is to consider the costs vs the long term savings. You do not want to spend $3500 on a new loan that will only save you $2000! You just paid a mortgage lender to lose money!! There are 2 big keys here… first determine exactly what your costs are going be for the new loan. Taxes and insurance costs for your escrow account are NOT costs. These are items you would pay regardless. Once you determine what the true costs involved are you can compare your costs vs savings. You have to take a small leap of faith here, so let me explain below…
Your savings with a refinance typically come over time. You reduce your interest rate and therefore your monthly payment, but it takes time for these savings to add up. The average refinance takes about 3 years to break even, that means if the loan costs $3500 it takes 3 years to before you save $3500. If you plan to move in two years this loan wouldn’t make much sense. You have a make an educated guess on how long you are going to stay in your home. Although no one can predict the future, most people know if there are any definite plans to move within the next 2-3 years.
Another concern when refinancing your loan is resetting the terms. Fixed rate mortgages are amortized (broken down) so that the mortgage company collects mostly interest upfront and then the majority of the prinicipal is repaid in the second half of the loan. This means that your need to have your loan officer take a hard look at this factor if you have been in the current loan for a long time (10 year ro more). I have looked at refinancing options for people that were over the half way point in their mortgage and making a change did not make sense.
A final thought about refinancing your loan is to consider a “no-cost” option. Doing a no cost refinance has become more and more popular. Lenders can pay your closing costs for you when you take a slightly higher interest rate on the loan. This might help bridge that costs vs savings gap even if you are going to be in the house for long time. Saving money is always a good thing if it doesn’t cost you anything to achieve it!!