Are you a serial refinancer?
Minneapolis, MN: As mortgage interest rates drop, many people believe that no cost loans, and refinancing multiples times is a game winning strategy. People who do this are known as “serial refinancers.”
A Wall Street Journal report shows about 2.2 million people have refinance their current home loan at least twice since 2009.
All loans have closing costs, so an important aspect to refinancing is the question, “is their a benefit?” Refinancing generally is down to obtain a lower mortgage interest rate, and hence, a lower mortgage payment. Some people also lower their term, going from maybe a 30-year loan to a 20-year, 15-year, or even a 10-year.
How do you pay closing costs?
There are a few ways to pay loan closing costs: Cash, roll into new loan amount, hide in interest rate, or a combination of any of these options. The most common way is rolling into a higher new loan amount, but a loan of people roll at least some, if not all into the interest rate. This achieves a low cost, or no closing cost refinance.
If done smartly, a serial refinancier can dramatically improve their situation and reduce the long-term cost of their home loans. If done wrong, while you may be lowering your payment today, you never get anywhere as you constantly reset your loan back to a 30-years.
Many people believe you must meet a certain percentage before you should refinance. A common number I hear is 2% lower. I couldn’t disagree more! The formula is simple, and could be significantly less of a percentage. Simply divide the savings by the cost. If you are likely to be in the home significantly longer than the breakeven period, it probably makes sense to refinance.
So is it worth refinancing?
You have everything to gain and nothing to lose to see significant savings in your mortgage payment with today’s historic low rates? Contact a local NON-Bank licensed loan officer – give them a full mortgage application, and let them crunch your numbers. If may be well worth refinancing again, even if you just did it a short time ago.
As a side note… Contrary to popular belief. In most cases, the WORST place to refinance is with your CURRENT Lender. Feel free to talk to them, but get a second opinion!