REFINANCE CONSIDERATIONS

If you are deciding whether to refinance an existing mortgage with a new mortgage with a lower interest rate, here are some ideas to consider. One rule of thumb is that refinancing is a good idea if your new rate was at least 2% less than your current one.

Another consideration is how long you expect to stay in your home. Refinancing a mortgage is similar to obtaining a brand new mortgage: you will incur virtually all the same costs as you would in getting a new mortgage. Therefore, you need to calculate your savings from the lower rate over the time you expect to live in the home and compare it to the total cost incurred to refinance. If you only intend to live in the home for three more years, but it would take five years to recoup the cost of the refinance in monthly payment savings, then it may not be wise for you to refinance.

Most lenders today offer another product that might assist you with your payback recovery period . With a “no-cost” loan program, the Lender pays part of or all of the refinance costs in exchange for a higher interest rate. Under this scenario, you may not lower your new payment as much but your recovery period should be shorter. Our CTX loan professionals will be glad to assist you in this analysis.

There are other considerations as when considering a refinance. You might also consider changing the type of loan program from the one you currently have. For example, you might want to switch from an adjustable rate mortgage to a fixed rate mortgage if you expect interest rates to go up over the period you expect to live in your home. By switching to a fixed rate loan, you have locked in your future interest rate. If you expect interest rates to fall, you may consider switching from a fixed to an adjustable rate so that your interest rate will fall with prevailing market rates according to the index that your adjustable rate loan will track.

If you are certain that your time horizon in the home is limited, a balloon program may be ideal for you. In exchange for your loan to be paid in a single “balloon” payment at the end of a set timeframe, you may obtain an even better rate than a comparable fixed-rate loan. Another consideration is the build-up of equity in your home. By switching to a term that is less than a thirty-year term, you will pay more per month than with a thirty-year term, but you will pay less interest and build more equity per payment.

If you need cash and have built some equity in your home, another consideration may be a cash-out refinance. Here, you are increasing the loan balance of your mortgage and actually getting cash from the equity in your home. These funds can be used to pay off existing higher interest rate debts, meet college or medical needs, build additions to your home, consolidate other debts into one loan, etc.

Finally, there are also tax implications to refinancing your home loan. You should contact someone with professional expertise in tax matters before refinancing in order to get the best possible advice.

There are a multitude of other loan programs available at CTX that may fit your precise needs. We highly recommend that you meet with a professional CTX loan officer to discover all the possibilities and better understand all the considerations.


Back to Pre-qualification