Refinancing your home might be something you are considering. After all, interest rates are generally low right now and you may be able to swap out your old, higher interest rate mortgage for a new one with lower rates. But will that put you in a better financial situation?

Refinancing may seem like a no-brainer…but it is not a wise financial move for everyone. Before you jump in with both feet, reach out to Scott Bennett at 503-703-4699 or to talk about your answers to the following questions:

What are your goals?

Lowering interest rates alone isn’t necessarily a good reason to refinance. But depending on your goals, refinancing could be the right move. For most, the goal of refinancing is to lower monthly bills. For others, shortening the term of the loan and becoming mortgage-free several years sooner is the goal. There are different options, depending on your situation.

Is refinancing worth the cost?

There are closing costs related to refinancing. These include things like appraisal, underwriting, title, etc. If your closing costs are $3,000 and you can save $200 a month by refinancing, it will take 15 months to break even. But…if your savings are only $50 a month, then it will take or five years to recoup the closing costs. A lot can happen to the markets in five years.

How will you pay for the closing costs?

Conventional wisdom says to pay the closing costs upfront. However, there are other options to consider. One is to roll them into your new loan. This can protect your savings account…but it will make the loan amount higher and will therefore take longer to break even. Another option is a “no-cost” refinance. There aren’t any closing costs…instead your loans comes with an increased interest rate.

What are the downsides?

Sometimes refinancing does have potential downsides. Taking a “cash out” refinance, which lets you refinance the remaining amount of your mortgage in addition to more money, may or may not be a good idea depending on what you want to do with the money. Sometimes refinancing adds more years to your loan. A 30-year mortgage could quickly turn into a 40- or 45-year loan through constant refinancing. Remember: the bulk of a mortgage’s interest is paid at the beginning of a loan. Resetting the clock again means you might spend years paying off interest before making serious inroads on principal.

Have questions? Reach out to Scott Bennett at 503-703-4699 or to talk about your situation.