Mortgage Refinancing

Refinance – The Right Way to do it.

Contrary to popular belief, refinancing isn't just about getting the best interest rate. How you should refinance your present mortgage depends on your financial goals and your current stage in life.

Important questions to ask yourself

Think about the following questions first and then speak to one of our Mortgage Experts. Armed with the answers to the following, you'll be happier with the end result.

• Do you want the lowest interest rate, the lowest closing costs, or the lowest monthly payment?

  Quite frankly, it is virtually impossible to get all three, even in today's all-time low rates. Think about what's most important to you and communicate it plainly to your Mortgage Expert.

• How many years do you expect to stay in your current house?

  Are you sure about that? Add a buffer of 1-2 years to this number if you're unsure. If this final number is 7 years or less, an adjustable mortgage where the rate is fixed for 5-7 years could make sense for you. Adjustable mortgages or ARMs have a bad rap because unscrupulous mortgage companies previously mis-sold these. The truth is, if you make an educated and informed decision, ARMs can save you a lot of money. They offer the security of an initial fixed rate period and the benefit of much lower payments than a 30 year fixed mortgage.

• What do you hope to get out of your refinance?
  • Do you wish to pay off the loan faster? The lower your term, the lower your interest rate. You'll save tens or hundreds of thousands in interest but your required monthly payment would be higher. Remember – you can always take a 30 year mortgage and make extra payments whenever you have some extra cash. Or you could take a 20 year mortgage and have the best of both worlds. We offer terms as low as a 10 year fixed mortgage where rates are far lower than a 30 year fixed.
  • Do you wish to reduce your mortgage payments while keeping other debts untouched? You should go for a regular rate refinance with a 30 year term. Choose either a fixed or adjustable rate depending on your answer to the first question.
  • Do you wish to reduce your overall monthly expense to consolidate your debts? Opt for a cash-out refinance which allows you to pay off other non-mortgage debts. You can save hundreds of dollars a month using this option. Think about combining this with the low rate of an adjustable rate mortgage or the long term savings of a 10-15 year fixed mortgage. This can be a powerful balance between the financial savvy of saving in interest costs and the breathing room of a lower overall monthly expense.
• What's the maximum monthly payment you're comfortable with?

  Ignore your initial instinct to go for the option that provides the lowest monthly payment. Calculate your overall monthly obligations and decide what the maximum payment you can afford or are comfortable with. If a 20 year fixed or a 15 year fixed mortgage is in this range, that could make more sense for you than a refinance which provides the lowest payment.

• What's the minimum monthly payment which will make it worth your while to refinance?

  Sounds self-explanatory, but it isn't. Once you get a quote, do a break-even analysis. Divide the closing costs quoted to you by the amount your monthly payment reduces by. This gives you the number of months it will take you to recover your cost of refinancing. This number should be less than the time you plan to spend in your current house.

• Do you want to roll closing costs & points into the loan?

  It might be tempting to do so, but remember you'll be paying interest on the closing costs then

• Would you like to buy the interest rate down?
  • Paying more fees is sometimes smarter. By paying extra points, you not only get tax benefits on the extra fees, but it will also reduce your interest rate and monthly payment. Typically, one discount aka buy-down point (1% of loan amount) will reduce your interest rate anywhere from 0.25% to 0.375%. On a longer term mortgage like the 30 year, this could mean tremendous savings in interest payment over the life of the loan.
  • Do a break-even analysis. Once you get a quote on discount points, divide the cost of buy-down quoted to you by the amount your monthly payment reduces by due to the buy down. This gives you the number of months it will take you to recover your cost of buying down the interest rate. This number should be less than the time you plan to spend in your current house.
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