Should You Refinance That Mortgage?

Many people are dropping everything to refinance their house since Mortgage rates have dropped again. The question is, should everyone jump on that bandwagon? Here are some things to think about…

You usually have to pay for an appraisal when you refinance. A lot of people are finding that when the appraisal comes back, their house has lost so much value that they don’t have enough equity to refinance. They then end up being out the cost of the appraisal which can range anywhere from $150-$400.

If you are wanting to refinance from a 30 year to a 15 year, remember the depending how many years you have been paying on that mortgage, moving to a 15 year most likely will require a higher monthly payment. My advice would be to keep the current mortgage, but just over pay it to effectively make it a 15 year. That way if you ever come across financial issues, you can revert back to the regular (lower) payment without being on the hook to the bank for a higher amount. Sure it is no longer going to get paid in 15 years, but there is that piece of financial security that is priceless.

As always, verify closing costs first and line that up with the number of years you think you are going to stay in the home. For example if closing costs are $6000 and you only plan on being there 5 more years, well that $6000 closing costs equate to $100 per month plus compounded interest over those 5 years, if your new payment after the refinance is not $100 less than your previous payment, there is no reason to finance since it won’t benefit you.

I always use a mortgage broker. I have used the same guy since I have bought my first home back in 1995. I use him since I always have a few things that I want when I refinance. My requirements are: No Escrow, No Prepayment Penalty.  When he does his rate search, he always finds me a lender at the lowest advertised rate with this conditions. He gets paid by the lender so I pay him nothing more than I would if I found the bank myself. I highly recommend you ask around for a reputable broker to help you in your search. In most cases states have increased laws to make sure they your interests are protected when using a broker.

These are just some things to think about before refinancing. Sure the lure or 4% mortgage rates is enticing, but you should always do your research to make sure that refianncing doesn’t cost you more that your current mortgage.

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