I recently ran across this.  “Why did the loan officer become a magician?  He wanted to make the interest disappear.”

Well, if it were really that easy, I’d learn a few magic tricks. But the reality of mortgages is that while refinancing may sound like a sweet deal if interest rates go down, there’s more to consider than the rate.  You need to consider your financial goals and the cost of refinancing, too.

Mortgage Rates

My rule of thumb is your original loan rate and rate at the time you’re thinking about refinancing need to be at least one percent lower. But even this percentage depends on your current loan amount, rate and term. You can figure out if refinancing is right for you by using INB’s financial calendar.  You’ll find it on our website at https://bit.ly/INBcalculator.

Financial Goals

• Would you like a lower house payment? If interest rates have dropped since you bought your home, lower monthly payments are a real possibility.
• Do you need to consolidate debt? For people with credit card debt which typically has a high interest rate, refinance the debt into your mortgage and save.
• Would you like to shorten your loan term so you’ll own your home sooner? Refinancing can help make that happen.
• Do you have an adjustable-rate mortgage? Refinancing can lock in a monthly payment, helping you put aside the anxiety of what your next rate may be.
• Do you need to make home updates? When you refinance, you can borrow against the current equity on your home and take the difference in cash depending on today’s value of your home. This will increase your loan costs but is an inexpensive way to borrow for major expenses.
• Do you want to pay an additional amount so your loan amount is less than your original mortgage? Ask how this cash can lower your monthly payment or loan term even more.
• DO you pay for private mortgage insurance (PMI) now and want to see about getting it removed? After purchasing a home, many buyers make updates.  If the home’s value increases, not only can you get a lower interest rate with refinancing, but your home’s higher value may mean you don’t need PMI coverage anymore.

Costs versus Savings

Refinancing a loan means paying the costs associated with a new mortgage loan. These costs vary by lender.  Some lenders advertise no closing costs but pay attention to the rate. In addition to closing costs and fees, consider:

• The length of your loan could increase, meaning paying interest over a longer period.
• Compare how long before you pay yourself back with savings to the cost to refinance.

If you need help deciding when to refinance, please call me or any INB mortgage lender.