We’ve counted 17 different reasons why someone would refinance their mortgage. Lowering the rate is only one of those reasons, and that reason, in itself, is not always in your best interest, regardless of the rate.
Let’s look at a few potential reasons NOT to refinance to lower your rate.
“I can save $50 a month if refinance!” – If that monthly savings comes with several thousands in loan costs how much are you really saving? What is you ROI, and when is your break-even point? Let’s not ignore these points just to save the cost of take-out coffee each month.
“But my application is No Closing Costs” – If you are saving $50 a month but adding 4 years to your mortgage (48mos x $2K) are you really saving? Let’s talk about the term s-t-r-e-t-c-h and not ignore it.
“I’m lowering my interest rate from 7% to 4%” – We’re listening. But we’d like to ask you how much do you owe? And when is your mortgage scheduled to be paid off? Believe it or not a 3% rate improvement is not always a valid reason for refinancing my mortgage.
We have a GoldCoast-Only term/analysis that we enjoy calculating. It’s called the “Effective Remaining Rate”. Even on a fixed rate mortgage we run this calculation. We take the remaining Term of the Mortgage in months (N), enter the exact current mortgage payment (PMT) and force calculate for Interest Rate (I).
You NEED to run this calculation before determining if refinancing my mortgage is indeed a wise financial decision.
Often the Interest Rate demonstrated can be MUCH lower than the Note rate. This is especially possible in the cases where principal has been overpaid on a regular basis. Smaller mortgages (typically under $200,000) are not eligible for No Loan Cost applications. Therefore PAYING Loan Costs to INCREASE your cost of money can be a huge mistake you may never know you just made.
The pressure is on us (your mortgage advisor) to demonstrate where the overall improvement will come from. It’s also an important part of the conversation to talk about the visible (and hidden) costs, as well as the “Stretch” related to elongating your mortgage term.
As for the other 16 reasons to refinance my mortgage? We want to have that conversation with you.