Refinance Benefit Analysis
When it comes to refinancing your mortgage, there is no simple answer to this question despite what some may tell you. There is no set “interest rate reduction” or other “rule of thumb” that truly works as everyone’s situation is different. Why can’t there be a simple answer? Because there are many factors that go into deciding what mortgage is best for you, not to mention each refinance transaction is going to cost you one way or another, even those “zero closing costs” home loans.
One of the more common analysis types, and the simplest, is the break-even analysis. This is simply the time frame it will take for your savings to match, or begin to exceed, the cost of the refinance transaction. This only takes into account the total cost divided by the monthly savings to determine how many months it will take to recoer those costs and begin truly saving money. But, even this analysis has flaws, such as not taking into account the time value of money.
So, what factors will affect your decision on whether or not you should refinance. Well, the list below is not all-inclusive, but it will help you get an idea…
- Your current interest rate versus the new irnterest rate
- Your current loan program versus the new loan program
- Closing costs for the entire transaction
- How long do you plan on staying in the new home
- Do you need or desire to take cash out from your home
- Has your financial plan changed since you began your last home loan
There are many reasons to refinance your mortgage that go far beyond the simple “I want a lower rate” question. Even the break-even analysis, the most popular decision maker, does not necessarily give you the proper answer as your plans may differ from merely a savings over time perspective. Your Mortgage Pilot™ can assist you in determining if a refinance is truly in your best interests and which loan program is best suited to meet your needs or desires.
For more information about refinancing, visit When Should You Refinance?
