Here’s what you should know about Refinancing
Whatever you do, please make sure you’re actually going to save some money before you refinance for a lower rate.
We are currently in a time of record low interest rates compared to just a few years ago. If you currently have a fixed-rate mortgage or your variable rate mortgage has reset to a higher rate, refinancing could save you some money. Refinancing to a lower rate would not only lower your mortgage payments, but would also reduce the total cost of your loan.
Before you go out and start the refinancing process, think about how long you plan on staying in your current home and how much it will cost you to refinance. If you don’t work out the numbers beforehand, refinancing could end up costing you more than you’ll save.
Refinancing is a process – it involves loan applications, underwriters, appraisers, legal services – and they will all charge a fee. Let’s use an example where you’re able to reduce your interest rate by 1%, and that will decrease your monthly payment by $100. Let’s also assume that the refinance will cost you about $3,000 – this means that it will take you 30 months to cover your costs. This is why I say it’s important to know how long you plan on living in the property – if you move too soon, you will end up losing money on the refinance.
Be careful if you’re being offered a “we’ll cover all the fees” refinance from your financial institution. Refinancing still costs the bank the same amount of money, and someone has to pay the costs (trust me – it won’t be the bank), so chances are the fees will likely be buried in the form of a higher interest rate.
To find out if refinancing makes sense for you, give me a call or send me an email. I can review your current mortgage and analyze the costs and benefits to make sure you come out ahead on your refinance.