What is a Refinance?

A mortgage is amortized over a long period of time, usually 30 years, so a large portion of the payment in the first 10 years are dedicated to the interest on the loan. When you refinance your home, the goal is to lower interest rate which in turn will decrease the amount you spend in interest on a monthly/yearly basis.

Factors to Consider Before Refinancing

1. Current Interest Rate

Interest rates are always fluctuating and if you can get a lower interest rate then refinancing is a great option for you, however, if your new interest rate is higher than your current then it is best to wait.

2. Jumbo Loan

If your original loan was a jumbo loan and you have paid down the balance to 417,000 or less then refinancing to a conventional loan is a great option since rates are normally lower for conventional loans than they are for jumbo loans.

3. Costs

Refinances are almost as costly as original mortgages and this is something to closely consider.  Some of the costs associated with refinances include: closing costs, title insurance, attorney’s fees, and sometimes appraisals, taxes and transfer fees. We suggest refinancing if you can save money with the lower interest rate despite the costs associated with obtaining a new loan.

4. Credit Score

If your credit score has improved since obtaining your original loan there is a chance that you will qualify for a lower interest rate. We suggest checking your credit score before you begin the process to refinance to see if it is worth proceeding.

5. Loan Term

Most mortgages are a 30 year term, but that is not the only option that we offer. If you are someone who continuously pays more than your monthly payment then it might be a good idea to consider refinancing to a lower term such as a 15 year term. You will be able to pay your mortgage off faster and as a result pay less in interest. Another point to consider in relation to your loan term is you do not want to refinance to a term that is longer than your current amount of time you have left to pay on your current mortgage. For example, you pay the most in your first 10 to 15 years on interest so if you have less than 15 years left in your current term then refinancing to a lower rate might not be as beneficial as you may think if that means resetting the clock.

6. Overall Savings

We encourage you to calculate how much you would save on a monthly basis by using our free mortgage calculator to determine whether a refinance is the best option for you.