Is a Refinance the Best Choice for You?

January 08, 2021
With mortgage rates at historic lows, many clients are wondering if they should refinance their current loan.  While moving to a lower rate may seem like a “no brainer” it is not always the case.  Below is a summary of a recent analysis we performed for a possible refinance.  In this case the client was already 8 years into a 30-year mortgage loan, with an interest rate of 3.65%, and was considering a new 30-year mortgage at 2.70%, with $4,000 in closing costs.  As you can see from the summary below a refi would reduce the monthly outflow by a little over $500/month but overall would not be saving money over the life of the loan as the total interest cost would be slightly higher due to the fact that interest on mortgages is amortized such that a much greater portion of the interest is paid up front; furthermore it would extend the term by 8 years.
There are certainly other alternatives here, as the client could look to take out a 15 or 20 year loan, or take a new 30 year loan and make extra payments, and quite possibly save a lot of money under those circumstance.  Ultimately, we just wanted to remind you that while it is tempting to jump on the refinance bandwagon to get a lower rate, that may not be the right solution for you.  Every situation is unique, few mortgage companies can quote you a reliable rate until the entire file has been underwritten, and it is important to consider what  the goals are for refinancing.  If you have questions regarding a possible refinance, we can assist with a customized analysis based on your needs.