Perspective

FAQ: Should I Refinance My Mortgage Right Now?

As mortgage interest rates decrease, a lot of people are wondering whether they should consider refinancing for a better rate. Below are some FAQs to consider when thinking about mortgage refinancing.

Should I refinance my mortgage given the decrease in interest rates by the Fed?

First, let’s begin with a quick reminder. The 0% interest rates you heard about recently are for Federal Fund Rates, which apply to large financial institutions. To determine whether you should consider refinancing, you will want to compare the mortgage interest rate of your existing loan to that of current mortgage rates.  If the rate difference is at least ½ percent lower, refinancing likely bears further consideration.

What are some good reasons to consider refinancing?

  1. Obtain a lower interest rate and lower your monthly costs
  2. Switch your mortgage from an adjustable-rate to a fixed rate
  3. Pay off your loan faster by moving to a shorter term
  4. Eliminate PMI (Private Mortgage Insurance) by switching from an FHA loan to a conventional loan
  5. Extract equity from your home to increase cash flow needed due to lost income from the coronavirus

How do I calculate the break-even point for refinancing?

Use a mortgage calculator, which can be found online (here’s one from Bankrate), to obtain the difference in your monthly interest payment. Then, calculate your break-even point by dividing your closing costs with your monthly interest savings. For example, if closing costs are $5,000, and you save $150 per month in interest, it will take 33.3 months or 2.7 years to break even. The cost to refinance is usually between 3% and 6 % of the loan amount.  You will also want to compare how long you plan to stay in the home as compared to the number of years to break even when making your decision.

Who should I call for further analysis and assistance? 

If you think you should refinance, reach out to your individual advisor.  While they are not mortgage lenders, they know your individual situation well and are happy to add additional clarity as to whether refinancing may make sense. If refinancing is likely to make sense for you, then our team is prepared to put you in touch with one or more mortgage lenders that we have available through our strategic partnerships and referral network.