When is Refinancing a Mortgage a Good Idea?

when mortgage interest rates are going

up and especially when they're going

down a lot of people begin to wonder

when is gonna be the right time for me

to refinance my mortgage is it a good

idea is it a bad idea what should I know

what should I consider we're gonna get

clear on that right now my name is

Andrew Finney and my passion is helping

you make sense of real estate you need

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you alright my friend at some point as

homeowners we're all going to wonder

when does it make sense to refinance in

short when you can save money on your

existing mortgage that's the time that

you might want to start getting really

serious and finding out if it's right

for you to help you gain perspective

let's review four common scenarios and

see which one most is akin to you the

first scenario is that the mortgage

rates have come down now let's say

whenever you bought your house maybe you

have like a 4.75 or a 7% interest rate

and now that you see the mortgage

interest rates are down to like three

percent or maybe three and a half or so

on average you're probably scratching

your head and saying hey how would this

work and how much money could this

realistically save me the best way to

know for sure will depend on how long

you've lived in your home how much of

your principle balance you've already

paid down and then getting back with a

loan officer that you've worked with the

help buy your home that you're in now

and reviewing your refinance options

with that being said what you want to be

very specific is like a rate and term

style loan we're talking about a rate in

turn all you're changing is the mortgage

interest rate but if you keep the term

the same you don't have to reset the

clock back to a 15 or 30-year fixed-rate

mortgage or what the type of mortgage is

that you had right what you can do is

say hey I want to go ahead and get a

lower mortgage interest rate and I've

already paid on my mortgage for five

years so I have 25 years left assuming

that you had a 30-year mortgage right

then I would like the lower interest

rate at 25 years rate and term financing

talk to your loan officer about that if

that sounds good to you so now I know -

is that your home is increased in value

so as the real estate market appreciates

over time your home is going up and as

you're paying down your mortgage you're

gaining more and more equity in your

house and in your

financial life though a lot of people

could say hey you know I bought this

home for like three hundred fifty

thousand in today's market it's worth

five hundred twenty five thousand

dollars I staggering 175 thousand

dollars of equity and you're like hey

how am I gonna get into this can I touch

my own equity it's a great question so

when you're talking about that you'd be

referring to you like a cash out

refinance now with a cash out refinance

that's not something that I as a trusted

real estate adviser are am very keen on

because all too often people don't do it

responsibly but if you're the person

that wants to do that because you want

to be responsible maybe you have some

very high interest debt that you either

paid down and it makes sense because the

rates are lower or your mortgage

interest rate to go ahead and knock off

the other debts that you have at the

higher interest rate okay that could

make sense just make sure that you're

making a well-informed decision that's

right for you in that case or if you say

hey you know I have all this money in my

house I have this one hundred seventy

five thousand dollars is there something

I could do to leverage this that will

earn more money well yes and we're not

necessarily talk about throwing it in

the stock market what happens if you

went out and bought your first rental

property or maybe this isn't your first

real estate holding that you have and

you want to purchase another one you can

tap your leverage inside of that house

known as the equity to purchase your new

investment property that is something

that you could do now again at the end

of the day with a cash out refinance the

one thing that I'm gonna ask you to do

always and always and always is make

sure you examine the reasons why you

want to do it what your plan is for the

money and to always consider your

options carefully and make sure that you

are making responsible decisions with

the money that you're taking out of your

home if you don't and you can't repay it

that place that you call home can be

taken away from you in what's called a

foreclosure or short sale proceeding

let's make sure that you don't get hurt

here by making the wrong decision please

choose responsibly scenario 3 let's say

that your credit score improved you've

been paying on time on your mortgage and

everything else that you have you've

been doing this now for a little while

you know one to five years here or

longer and your credit score has taken a

really big boost as a result of being a

homeowner maybe when you bought your

home you were struggling to have that

620 or 640 credit score you got the best

loan rate in terms that you could at the

time but now you're looking into the

future self where you are today three

years into the future right now and

now you have a credit score let's say of

700 740 maybe seven 60 well if you're

over that 700 marker you can quote back

and have a conversation with your loan

officer especially if the interest rates

are good at that time that you're having

the conversation with them and see how

big of an impact your credit score alone

could have on the rate that you could

get and how much money is gonna save you

over the long haul scenario four is

assuming that you opted for an

adjustable rate mortgage and now you're

noticing that the mortgage interest

rates are going up at that time you

might decide that it's a really good

time to have a conversation with your

local loan officer the review your

refinancing options because if the

interest rates keep going up what else

is going up along with it your monthly

mortgage payment so let's talk about

getting you into a fixed-rate mortgage

so that that can assist you and having

stability and provide you with that

financial comfort now again it's

important to note I'm a trusted real

estate adviser not a loan officer so

when you're ready to have that

conversation pick up the phone and call

a local loan officer to review your

refinance options with you okay so now

that we know for common scenarios that

many of us will face over the course of

being a homeowner let's take a closer

look at seven ways to know if

refinancing is right for you the first

thing that you want to do is calculate

your break-even point with every

refinance is gonna be a break-even point

so in other words weighing out the pros

and the cons of the situation in terms

of dollars and cents let me give you an

example so the way that you would do

this is you would divide your mortgage

closing cost by the monthly savings of

the new mortgage that you're going to

get let's say that you're paying $5,000

and a closing cost but you'll save

roughly $200 per month as a result of

refinancing then it would take you

approximately 25 months to hit that

break-even point again the way that we

do this is dividing your mortgage

closing costs the five thousand by the

monthly savings of your new mortgage the

two hundred dollar benefit when done 25

months as a result to calculate in the

break-even point in that example the

second thing that you can do is simply

turn to Google and find yourself a nice

lovely mortgage refinance calculator to

compare your current mortgage to the

mortgage that you believe that you could

get or what's being shared with you from

a loan officer that probably calling you

if the interest rates are going down say

hey we could save you money we could

save you money well because I break-even

point let's go over and

a mortgage refinance calculator and

let's make sure that the math checks out

number three is to make sure that you're

planning for the fees associated with

the refinance refinancing your loan

could actually be kind of expensive here

so let me give you three really quick

things to be looking for the first one

is your mortgage application fee a lot

of times this can range between like

$250 to 750 dollars then you have the

loan origination fee itself which is

roughly 1% of the value of your loan so

if you're refinancing a $500,000 home

one percent of that loan value would be

$5,000 so be prepared for that the next

thing that you want to look at is the

appraisal fee normally appraisals could

run anywhere between like 350 to 650

dollars right now in 2019 so make sure

that you understand how much this is

gonna cost and factor that into whether

you can afford the refinance your home

and if that makes sense by going back to

the first thing calculate that

break-even point and understand how much

longer you're gonna be living your new


is it the forever home is it the

long-term home or is this a home that's

gonna help you move on to the next

destination that you want to be the

fourth thing that you want to do is

consider the term of your new home loan

are you looking at a 15-year fixed-rate

mortgage loan are you looking at a

30-year fixed-rate mortgage loan are you

looking at an adjustable rate mortgage

loan make sure that you understand the

term make sure you understand the

details of the home loan that you're

getting and that it's right for you and

your family moving forward the fifth

thing to know is that whenever you're

thinking of doing a refinance it usually

makes sense earlier on after closing on

your house and when we're talking about

that what's that period of time we're

looking at maybe anywhere from two years

to five years why is that exactly and

that's because that you're paying most

of that mortgage payment that you're

making every single month is going to

the interest payments on your loan so if

you're actually in a market that has a

declining mortgage interest rate it can

become massively beneficial to do that

because let's consider if you recast

that entire thirty-year spread over for

a 30-year fixed-rate mortgage then what

happens if you've been paying on your

mortgage for 10 years you only got 20

years left and you said hey I want a

much lower monthly mortgage payment and

I want to lower interest rate but I want

to do it over 30 years again because I'm

gonna have an even lower payment and

it's gonna be more convenient for me

well if you do that then now instead of

paying off your house in 20 years it's

going to

another 30 years of paid off so that's

why can oftentimes make a lot of sense

earlier after you closed on your home

within like to the five years depending

on what interest rates are doing have

that conversation with a loan officer

whenever you feel the time is right for

you the sixth thing is to figure out if

you're willing to invest all the effort

that it takes to refinance your home

because part of the refinance process is

yes you're gonna have to have an

appraisal yes it's gonna take 30 to 35

days in a lot of cases that close on

your new refinanced home so whenever you

do that you're like hey I already own

the home so I'm actually okay with it

it's just gonna be a little bit

nail-biting because then I have to go

through almost like the buying journey

again you go through underwriting you

got to supply the documentation that

they're asking for you really want the

hassle now my guess is is if you're

still with me at this point in our

conversation today the answer is

probably yes so if that's the case they

examine the reasons why it's important

to you write it down on a piece of paper

and go ahead and start making your plans

by getting in touch with your local loan

officer you review your home refinance

options with you the seventh thing is to

know your Chris or has your credit score

gone up has it gone down or has it gone

all around since you closed on your

house and since you've owned it your

house if your credit score is up we

talked about that earlier in our

conversation today it can be a good

thing to help you get the best loan

rates in terms when considering a

refinance so hopefully with these 7 tips

it helps you better figure out and

better get your thought process going

for what you should be considering when

get doing a home loan refinance now what

I'd like you to do is to tell us any

other tips that you might have to help

us all gain perspective and make sure

that when we choose to refinance a home

loan or doing the right thing and we've

considered everything carefully please

share your tips in the comment section


alright my friends so now let's take a

closer look at the big dinners guy to

refinancing your mortgage and how a home

equity line of credit works looking

forward to our next conversation we'll

see in a few