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It is not too late to refinance

Refinancing involves replacing your existing mortgage with another one and there are many reasons why refinancing might or might not make sense and they are not always obvious. Most homeowners think of refinancing when they hear in the news that interest rates have gone down; however, just because interest rates have gone down does not mean that refinancing will create automatic savings; conversely, just because interest rates have gone up it does not mean that refinancing no longer makes sense. One must take into account the projected monthly savings as well as the costs of refinancing and balance that out with how long you will keep the loan in place. Given the fact that mortgage rates may be on the rise, replacing an existing adjustable rate mortgage or a Home Equity Line of Credit may also be good reasons for refinancing.

The big question you need the answer to is “does refinancing make sense for me now?”. The answer is not a simple one and depends on many factors: your current interest rate, whether or not you have a fixed rate or adjustable rate, loan amount, current payments, expected timeframe for owning current home, goals for refinancing, elimination of mortgage insurance, etc. Some borrowers just want to lower their payments and do not care if they extend their loan term out 30 more years. For those borrowers who want to pay off their loan quicker, the solution may be a shorter term mortgage like a 15 year mortgage, which provides rates about 0.75 percent below 30 year fixed rates or, by simply increasing your payments you may be able to shave off an appreciable amount of mortgage interest payments over the life of your loan without refinancing.

Keep in mind that just because mortgage payments go down does not mean that the borrower is saving money. A comparison of an existing 30 year mortgage that only has 20 years remaining at, say 4 percent with a new 30 year mortgage at 4 percent, will show that a borrower will enjoy a lower payment but in reality the new loan will stretch out your mortgage payments for 10 more years which will increase the mortgage interest you will pay over the life of the loan. Here is a very general rule of thumb: refinancing should be considered if you can lower your interest rate on a fixed rate loan by at least one half of one percent or more. Although, do not be seduced by a mortgage with lower payments without looking at the whole picture.

For those homeowners who want to create cash, a refinance may make sense any time. By replacing your current mortgage(s) with a larger one, you will create cash and that cash may be used for anything you want, such as kids’ college, payoff a spouse or partner, remodeling, buying a car, vacations, paying off a Home Equity Line of Credit, down payment on another home, etc. Refinancing will not increase your property taxes nor will there be a tax on the cash you create. In order to make sense out of your options, it is advisable to consult a mortgage professional. You may also want to consult your accountant or financial advisor.

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