Professional Mortgage Consultants

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Refinancing

Refinancing is the process of adding a new first mortgage to replace an existing first mortgage and/or any other liens you may have.  There are two types of defined refinancing:

NO CASH-OUT REFINANCE

  • Short term benefit – Reduce your monthly mortgage payment.
  • Long term benefit – Reduce the remaining term of your loan and thus probably save tens of thousands of dollars in interest.

Refinancing can be an expensive transaction, so our advice is to first determine if the savings outweigh the expense of the transaction.  As a rough gauge of the expense, pull out your Closing Disclosure.  This is the settlement sheet you received when you last purchased or refinanced that showed every closing cost.  Note Sections A, B, C & E.  These are your "closing costs."  The expenses involved with your proposed new loan will be roughly the same, except:

  • There will be no transfer tax – the ownership is not being transferred now.
  • Title insurance will probably be a couple of hundred dollars less.
  • There will probably be no property test expenses (e.g. home inspection, radon, water, or septic).

The rule of thumb regarding the cost vs. benefit of refinancing is that you need a 0.75% "spread" between your existing interest rate and today's current rates.  For instance, let's say that today's rate for a 30-year fixed rate mortgage is 3.000% with 0 points.  Thus you will need your current interest rate to be 3.750% or greater to make the transaction worthwhile.

But, like all rules of thumb, sometimes they're right and sometimes they're wrong.  With a higher loan amount, it might work out that a 0.50% is worthwhile; but with a lower loan amount, it might take a spread of 1.250%.

Also, the time frame you would expect to remain in the property is a determinate:   The longer the time-frame, the lessor spread is needed to make the transaction worthwhile.  At no charge nor obligation, we can run the cost vs. benefit analysis for you.

Click here to go to the Cost vs. Benefit Analysis Questionnaire.

CASH-OUT REFINANCE

  • Withdraw cash ("tap equity") for such expenses as home improvement, college tuition, or bill consolidation, or for such purchases as a 2nd home, investment property, car, or major vacation.

If you wish to withdrawal cash, we suggest that you first determine the amount of that expense or purchase.  For example: If you want to finance some home improvements, determine what you want done, price the job(s), and ask the time frame to complete the work.  If you want to consolidate your bills, determine which bills you wish to pay off, then add up the recent balances.

Now that you've determined the purpose and amount, complete the Refinance Questionnaire. We'll send you a scenario(s), detailing the new payment and all of the costs.

Helpful Resources

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