Does it make sense to refinance?

Refinancing to get a lower rate is a great idea—as long as you take all factors into consideration to ensure you actually save money.

The first thing to consider is how much it costs to refinance. Sure, you’ll see “no cost” refinances advertised, but rarely is this actually true.

Refinancing usually involves closing costs, title insurance, legal fees, appraisal fees, taxes and transfer fees.

“No cost” usually means “no-out-of-pocket-cost”.

In that case, closing costs are either added to the loan balance so you pay interest on them, or your interest rate is higher to cover closing costs.

You may also have to pay a prepayment penalty to get out of your existing mortgage.

Some lenders give you the choice of paying lower closing costs in return for a slightly higher interest rate.

For instance, if you pay $2,000 to close, your rate may be 5.5%. But if you pay $3,000 to close, your rate may be 5.25%.

Another thing to consider is how long you’re going to be in your house. If you’re planning to move in two years, refinancing may cost more than it’s worth—unless you’re going from a very high rate to a much lower one.

Of course, if you can find a true “no-cost” refinance (where you pay no money upfront and your rate and balance don’t increase to cover closing costs), you’ll save money even if your interest rate is lowered by a tiny amount.

One way to maximize the savings from refinancing is to keep your monthly payments the same.

That way, the amount you save in interest will go directly toward principal so you pay off your home faster.

Obviously, there are a lot of factors that can affect your refinancing decision.

The only way to know for sure if you’ll save money is to have an analysis done of your specific situation.

To take advantage of this free service, call us today!

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