Does It Make Sense To Refinance?
Yes, interest rates have dropped again. Are you wondering: I just refinanced, should I refinance again? I have a pretty low interest rate, does it make sense to refinance now? Everyone has a different situation. However, regardless of the opportunities offered from time to time in the form of low interest rates, your mortgage should be a part of your overall financial plan.
In a lot of cases, a refinance may be just what you need to improve your financial plan – a restructure, if you will, of your life plan as it is today. I hear many stories each day from homeowners and the first thing we talk about is what they are looking to accomplish.
There are three main reasons why people refinance: 1) To lower the monthly payment; 2) to switch to a better loan product, e.g., from an adjustable rate mortgage (ARM) loan or interest-only loan to a fixed-rate loan; and 3) to take cash out on equity (yes, if you have equity).
To lower the monthly payment for financial reasons only, it should make sense. You need to calculate your new monthly payment at the same remaining term of your current loan. Divide the savings per month into the closing costs and see how long it takes to break even. If you’re going to remain in the house for longer than it takes to break even, you should consider refinancing. Refinancing your current loan with 20 years left to pay to a 30-year mortgage may result in cash flow savings. But it may not make financial sense since you will have to pay your new mortgage for 10 more years.
However, you could be refinancing for other purposes. For example, I did a loan recently for a couple who were commissioned sales-people. They no longer worked in sales and their new salary was a lot lower than what they had been receiving. With the lower interest rate and the longer-term of the mortgage, their new monthly payment was a significant reduction. More importantly it fit their budget. Restructuring your existing mortgage may have its advantages, such as improving your cash flow to make room for a growing family, tuition or retirement.
If you have a “jumbo” loan (loans above $625,500), you may be surprised to find out how much these rates have dropped. For many years, jumbo loan interest rates were always higher than non-jumbo loans. Relatively recently, that is no longer the case. You should definitely check out interest rates on jumbo loans.
Also, you may consider refinancing into a shorter term. If you have had your 30-year mortgage for a few years and can’t stand the thought of starting a new 30-year loan, you may want to look into a 20or 15-year loan term. Rates should be a little lower and the monthly payment may also be lower.
How do you get started? Any experienced loan officer or a licensed Realtor who has been in the real estate business for a while will be able to make recommendations and help you determine whether to refinance. Our loan officers at Honolulu HomeLoans will be happy to sit down with you to review your current situation and financial goals. Please call (808) 681-7500 to make a no-obligation appointment or visit our website at www.honhl.com.