Need help determining whether to refinance or not? Not sure how much you will save and how long it will take? Give us a call. We can help you. Our consultants will assist you in compiling the data to determine what makes sense for you.

When is it right to refinance?  

There are many answers to this question and the answers are always based on each person’s individual scenario.  So, back to the original question of when is it right to refinance your property?

There used to be a universal rule of thumb that stated if you can drop more than 1.5 points in your interest rate then the costs of the refinance would be feasible.  This is not a good rule as it only takes one of the factors into consideration.  You need to analyze time and principle balance as well.

The time balance and principle balance left on your initial mortgage needs to be added into the equations well.   All factors (interest rate, principle balance and term) need to factored into the equation to determine when your break even period.  Remember, that when you reduce your terms (Time) you will likely increase your monthly payment. 

The break even period is the time it takes for the savings of the refinance to equal the costs of the refinance.   The calculation will become even more difficult when you go from a variable rate product to a fixed rate product.  One of the better calculators I have seen is on the Mortgage Professor’s site at this link: Comparison Calculator.

It is always better in terms of the cost of money over time to reduce your term.  If the higher payment makes it difficult to swallow the shorter term, then you will want to consider a higher term or perhaps the refinance is not in your best interest at this time.  Talk to one of our mortgage professionals, and let them know any concerns you have.

If you get confused with these terms and the language just does not make sense to you, please just call our office.  We will run different scenarios for you and review the results with you in simple language and math.  We have programs that will provide the data for you to make your decisions with. 

For those who want simple rules?

• Reduce your rate by 1-1.5 percentage points
• Reduce your term by a minimum of 3 years
• Make sure you will be in your home long enough for the break even time to make sense.
• If you want to take cash out, keep the LTV below 80% so that you will not have to pay MIP
• Work with a UMB Broker or Banker to keep your costs down.

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