We help you answer the age-old question, “Should I refinance?”by Tim Manni
However, the answer only becomes simple once you are given the proper advice. The problem with the majority of those online answers to “Should I refinance,” is that far too may “experts” are giving out the wrong advice, says Dan Green, loan officer and contributing writer to HSH.com.
“Not only will I tell you how to properly answer the question of ‘Should I refinance,’ I will tell you how to do it for little or no cost,” writes Green in his latest contribution to HSH.com, titled “Should you refinance?”
According to the experts, once you have calculated your break-even point, choosing whether or not to refinance is easy. If you plan to live in your home longer than the break-even point, say “yes” to the refinance. Otherwise, say “no.”
In a vacuum, this logic works. In the real world, however, it fails.
3 reasons why their logic fails
- The logic assumes that mortgage rates stay constant over time. They do not.
- It assumes that you know for certain for how long you will live in your home. You do not.
- It does not account for the unrecoverable costs of a refinance (which are typically added to your loan balance on which you pay interest). These costs can be high.
Simply calculating your break-even point is irrelevant because the formula is too self-contained. There is a much better way to approach your refinance.
Here is how to make a better refinance decision
When you are ready to refinance, you cannot control your mortgage rate; that is a mortgage market function. However, since you can control your closing costs, that is where you should focus your attention.
When possible, look for a zero-cost refinance
A zero-cost refinance is exactly what it sounds like–it is a refinance for which you pay zero closing costs. But do not confuse “zero cost” with “free.” There is a cost.
In exchange for having your closing costs waived in full, your lender will ask you to willingly accept a mortgage rate that is slightly higher than today’s “going rate.”
That increase in rate could be as small as 1/8 percent, or as high as 3/8 percent. The net effect is that you will pay a little bit more each month in interest, but you will not have to pay a dime upfront to your lender.
Click here to continue reading the latest advice from professional loan officer and writer Dan Green.