Expert advice on whether to refinance your mortgage
LendingTree: The average refinance of a mortgage costs 2% - 6% of the loan amount
(InvestigateTV) — Millions of Americans hold home loans with interest rates higher than the current mortgage rate, according to ICE Mortgage Technology, making them potential candidates for a refinance. But financial experts caution interest rates alone are not the only factor to consider.
Linda Bell with Bankrate said there are several things to think about before refinancing a mortgage.
“You need to make sure that it makes sense for you financially,” Bell said. “Don’t just look at the mortgage rates right now, which are below 6.5 percent right now and say, ‘oh I have a 7 percent rate I need to refinance.’”
Bell said borrowers need to establish their “break even” point.
“And what I mean by that is you have to make sure this loan makes sense for you, and it doesn’t cost you more than the refinancing bills,” she clarified. “Because think about it: you’re taking out a new mortgage. You have to pay closing costs. You have to pay all these things, and it may not make sense for you if you’re deciding to move from your home in a few months or a year. So, you need to establish that ‘break-even point,’ and that will help you determine if it’s the right time for you to refinance.”
Bell also recommended that those who do choose to refinance shop around and don’t rush into a loan if they are unsure.
“Weigh the pros and cons with each lender and say, ‘OK, this one is offering me this, with this one the closing costs are a little bit more.’ And the closing cost that’s important for people to consider. You’re essentially taking on a new mortgage,” she stressed. “So, the closing costs come with that, and you have to pay about 2-5% of your loan amount in terms of closing costs. So, it may not make sense for you to refinance, so definitely, definitely that is my main tip. Crunch the numbers and make sure it makes sense.”
She said people should look at what best suits their budget and their family’s needs, and don’t rush.
“And don’t feel like you have to go it alone,” Bell urged. “You know, if you have an agent that you can work with and even your lender can be a great source for you to tap into to get as much information as you can.”
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