1. Why?
2. Your Current Interest Rate
3. Refinance Closing Costs
1. Why?
Do you need cash-out? If so, why? To pay off credit card debt? Student loans? Vacation? I have many clients who are hell-bent to keep their 2.75% mortgage rate while they pay 25% on $60k in revolving debt. Not too smart to liquidate your home's equity to pay for a vacation in many cases. However, it could be extremely beneficial and potentially save you hundreds every month to use your home equity to pay off HIGH-interest revolving debt; sometimes, even if it means increasing your current mortgage rate. Do the math and see if it makes sense or contact someone who can do the math for you who you trust.
Or, do you just a lower interest rate and no cash-out? This may be referred to as a streamline or a rate/term refinance. See Item 2 below.
2. Your Current Interest Rate
If your current interest rate is at least a half point higher than your proposed refinance interest rate, then it may make sense to refinance. Have your trusted lender do the math and compare how much your current monthly payment is with how much the future monthly payment would be with the lower interest rate. Knowing how much your monthly savings would be is a key variable to consider when determining your "recoup period".
Your recoup period is calculated with dividing your total closing costs to refinance (minus your escrows) by your monthly savings. The lower this number, the better. The recoup period would be a larger variable to consider when refinancing with a streamline (no cash-out).
Example: Total closing costs (minus escrows) is $3,800 / Total monthly payment savings of $291 = 13.06.
This means that the recoup period would be 13.06 months (the number of months to recoup the closing costs through the monthly savings).
It may be financially advantageous for a cash-out refinance option EVEN if the new mortgage rate is HIGHER! Primarily, this would make sense when using the cash to pay off credit card debt. I've had several clients use their home equity to pay off high credit card debt by refinancing to a higher mortgage rate and still have nearly $800 per month.
3. Refinance Closing Costs
Depending on the type and terms of the refinance that you decide is best for you, closing costs can and will vary daily and will be different from one lender to the next.
If you're pondering the idea of lowering your interest rate and your current rate is 2.25%, then keep pondering. You likely will not get a rate lower than that again in our lifetime. But, if your rate is 5.5% or higher, give me a call. I may have some options for your.
If you're pondering the idea of using some of your home equity to pay off high credit card debt, then call me. I will run the numbers for you and will present you an easy to digest proposal so you can decide if that makes sense for you.
With a rich background spanning over a decade in the mortgage and real estate sectors, Terry Roberts has become a cornerstone in guiding over 10,000 clients through the complexities of the home purchasing journey in the United States. His expertise covers a broad spectrum of housing loans including conventional, FHA, VA, and cutting-edge new construction financing options.
Emerging from challenging early life circumstances, including teenage parenthood, dropping out of high school, and facing homelessness, Terry's determination led him to serve in the US Marine Corps. This decision was driven by a commitment to safeguarding freedom and securing a better future for his family. His active duty service in the US Marine Corps, marked by nearly a decade of dedication, instilled in him a profound desire to assist fellow Americans in achieving homeownership, a cornerstone of the American dream that he fiercely believes in.
Terry leverages his profound understanding of the real estate market to empower individuals in their pursuit of property ownership as a strategic investment for wealth generation. His journey from adversity to becoming a beacon of hope and guidance in the real estate domain is not just inspiring but a testament to his commitment to his clients' success.
Connect with Terry Roberts, a proud USMC Veteran and Senior Mortgage Broker (NMLS 397987), for expert guidance on your path to homeownership. Visit www.TerryRoberts.com at E Mortgage Capital, where every client's dream is approached with the respect and dedication it deserves.
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