Is Refinancing Your Home Mortgage a Good Thing?

Refinancing your home mortgage might be a very good thing for you. People refinance for one reason: to save money in some way. Sometimes, people might save money by getting a lower interest rate and, therefore, having a lower monthly payment. At other times, people may take a larger monthly payment in return for a much shorter note payoff time, saving themselves many thousands of dollars in the long run and becoming debt-free sooner.

A mortgage refinance can save you money in another way that might be even more beneficial to you, depending on your personal circumstances. When you refinance, depending on the amount of equity that you have in your home, you might be able to roll in other debt payments that you have: credit cards, auto loans, even past due utilities bills. These would be paid off in full by the lender at closing, so that you would be free of all of the included debts. This could save you hundreds of dollars every month even in cases where your actual mortgage payment goes up. This would also help your credit rating.

There is another thing that you can do with a mortgage refinance: get CO, or cash-out. This means that you take a mortgage that is higher than the remaining principal balance, and that overage is given to you in the form of a check from the lender. Again, the amount that you can get depends on the amount of equity you have in your home. Keep in mind that this money is still part of your new mortgage balance, however, so you are paying interest on it.

It is recommended that if you have good enough credit and the going interest rates are low enough that you could drop your interest rate on your current mortgage by at least 2%, that you seriously consider refinancing. You should also refinance yourself out of an ARM before it balloons.

If you have been a good customer, your current lender may very well honor your request for a loan refinance in order to keep your business. But if you have a high rate and are seeking a substantially lower on, or if you do want to do debt consolidation, it might be better if you talked to a mortgage broker. Brokers can put you in touch with many more loan programs than your own bank can, so you could get a better deal. However, going through a broker could cost you a great deal up front - even if you are able to roll most of the closing costs into the loan. So, make sure that you get a potential lender to tell you, in writing, that they will guarantee their GFE (good faith estimate). They don’t have to by law, but if you demand it of them and they want to compete for your business they will guarantee it.

But there’s a lot more to it than that. There is a vast array of different fees that your broker might charge, and most of them would not be charged if you went through your bank. A lot of these fees might be "junk fees", which means you could negotiate them and even get them dropped. But brokers make their money on the point-spread and the loan origination fee (which is one point, or 1% of the total loan value). Know how many points you are paying and why, and ask yourself whether it is worth it to you to pay or finance those extra few thousand dollars in order to get your new payment.

Also, if you are looking at refinancing into a longer mortgage, make your broker give you calculations that show that you save more money both long-term and short-term. If you don’t, if you only save money short-term, you should only do it if you have plans to refinance into a shorter note sometime in the next few years.

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