Should I Refi? What to Consider Before Refinancing Your Mortgage

Have you been getting tons of advertisements telling you now’s the time to refinance your home? These advertisements promise a huge monthly savings and sometimes sound too good to be true. Let’s look at what a refi is and what you should consider before getting one.



What Is a Refi?

Refi is short for refinance. What that is, is taking out a new mortgage with better terms to pay off your existing mortgage. The new mortgage will likely have a better interest rate, and then depending on your wants and needs, you can shorten the loan terms or stretch it out to lower your monthly payments.



What Are The Benefits Of a Mortgage Refi?

The short term benefit of a refi, and to many what is considered to be the primary benefit, is that it can lower your monthly mortgage payments, and have a positive impact on your household monthly budget. In addition to this there’s also the potential for the more long-term benefit of saving you a considerable amount of money on your home in the long run, thus saving you money that you might not have saved if you chose not to refinance.  If your current mortgage has a 6-7% interest rate, refinancing with today’s rates could save you hundreds of dollars each month. Another important factor to consider is if you are paying PMI on your current mortgage. There’s a chance that refinancing may allow you to remove that additional cost as well.

Since home values have sky-rocketed in the last couple of years, another option is a cash-out refi. This is where you take some of the equity out of your home when you refinance your mortgage.

So, say you owe $200,000 on your home, and you want to take out $75,000 in equity. You would get a new mortgage for $275,000 – $75,000 of which gets deposited into your bank account. With this option, you can pay off other debt, buy a car, remodel your kitchen, or do whatever else you want.



How Much Does a Refi Cost?

The cost of a refi varies based on the lender you use, the type of loan, and the loan amount. As a general rule of thumb, you can expect to pay 2-5% of the loan amount in costs and fees. Some lenders will allow you to wrap these expenses into your new mortgage, so you won’t have to pay any money out of pocket.

The cost of the refi should play a role in your decision on whether or not to go through with it. If you know you will be selling your home soon, a refi may not be the smartest financial move. You’ll want to calculate your break-even point to see if the refi will be a good move for the long term.



Should I Refi?

The bottom line is, it depends. Every homeowner’s situation is different.

You need to look to see if you will be saving money in the long term by doing a refi. If your interest rate is lower than current rates, pass. If the closing costs negate any savings, then pass. But, if you would end up with a lower rate, lose the PMI, and be able to pay off your mortgage more quickly – go for it!


Have any more questions? Let us know!  We can also suggest a few excellent lenders that you could speak with about your refi, if you do not have a Mortgage Lender to work with you already.


Whether you are a first time homebuyer or you're ready for a bigger home and you've decided to sell,
LUXRE is here for YOU every step of the way!

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