# Does It Make Sense To Refinance?

This is the age-old question we are asked time and time again on nearly every mortgage scenario. Nobody wants to refinance their home loan, with any shroud of doubt. So how do you determine whether the cost-benefit is the right choice for you and your family?

2 Tests will determine if refinancing makes sense or not

1. Does it break even with cash on cash?

Put another way, are the monthly savings generated by refinancing large enough to offset the costs of securing the new loan? Specifically, at what point in time can you expect to recuperate your investment? For example, if you’re able to save \$150 per month on a refinance, and your closing costs are approximately \$2600, you’ll break even in 17.33 months.

Total closing costs ÷ monthly savings = breakeven point in time

1. Does it break even with the interest savings over time expressed as a monthly figure?

If the payment savings doesn’t produce a cash-on-cash benefit, but the amount of interest that you are saving over time is substantial, that money can be divided by the term of the new loan to justify a monthly payment benefit. For example, let’s say you have a 30-year fixed-rate mortgage that you took out a couple of years ago at 4.625%, you can refinance today into a new 20-year fixed-rate loan at 3.5%. Because you’re on an accelerated amortization schedule, the principal and interest payment on the new loan will be higher. So the payment will be higher, the rate will be lower right? The difference in interest rate relative to the compared loan amounts in such a scenario could easily produce a substantial break even on the interest savings, perhaps as high as \$50,000 less in interest! Using that \$50,000 as an example, that’s a monthly savings of \$208 per month on a shorter-term mortgage!

Interest savings over time between your loan and the new loan ÷ term of the new loan= monthly interest savings

Total closing costs ÷ monthly interest savings= breakeven point in time

Some other considerations come into play when determining whether or not refinancing your mortgage makes sense

If your breakeven point in any of the tests above is longer than the amount of time you intend to keep the loan for, refinancing probably wouldn’t be in your best financial interest. Generally, if you can refinance your home loan and break-even in 36 months or less, it makes sense. If refinancing takes longer than three years, give it a second thought and really take into consideration how long you intend to keep the loan for.

Following are some considerations in determining whether or not refinancing is right for you:

• You plan to sell the house
• You might refinance the same house again
• Your job or income might be changing
• The interest rate is set to change on the adjustable-rate mortgage if you have one presently
• The value of your home is in question
• Are you in need of extra cash?
• Do you need to be debt-free sooner?

To determine if your refinance makes sense, run the tests. These tests stand the test of time. If you’re considering refinancing your mortgage, contact a mortgage lender who understands and is willing to perform a cost-benefit analysis for you at no charge. This is a lender that will give you the right information so you can make the best choice possible for your unique situation. You can receive a complementary refinance cost-benefit analysis from us, today. Learn when refinancing does make sense.

## Navigating FHA Loans for Multifamily Properties: What You Need to Know

One of the biggest challenges in securing an FHA mortgage for a multifamily property is…

## How to qualify for mortgage with low bank statements and tax returns

Traditional lenders often require extensive documentation, such as tax returns and bank statements, to verify…

Buying a home is one of the most significant financial decisions many will make in…

## Homebuying Tips for June 2024: How to Qualify in Today’s Market

What It Takes to Be a Homebuyer in June 2024 Buying a home is a…

View More from The Mortgage Files:

1. […] Two questions on every mortgage applicants’ mind  “where are mortgage rates? Does it make sense to wait till after the presidential election to complete my purchase or refinance? […]

2. […] Two questions on every mortgage applicants’ mind  “where are mortgage rates? Does it make sense to wait till after the presidential election to complete my purchase or refinance? […]

3. […] for a mortgage loan in Sonoma County, California? Whether buying a home or refinancing a mortgage, your lender will require you to lock your interest rate on the amount being borrowed. How long you […]

4. […] Run a cost-benefit analysis of leaving the debts in place or paying them off by taking out a bigger loan against your home. Determine which option makes the most sense given the cost versus the monthly savings as a result of paying  the obligations off. […]

5. […] a home or refinancing a home loan?  If the interest rate is not locked, be prepared to watch the market very closely with your […]

6. […] rates are still favorable, even if you took out loan as recently as last year. When it comes to refinancing, borrowers must have two components:  loan make sense + net tangible […]

7. […] in years past, the weight of an appraisal to determine the home value for the purposes of refinancing a mortgage is based upon the facts (which are primarily based on other homes that have sold) and what the […]

8. […] in years past, the weight of an appraisal to determine the home value for the purposes of refinancing a mortgage is based upon the facts (which are primarily based on other homes that have sold) and what the […]

9. […] question consumers often ask is what their homes have to be appraised at in order to refinance their home. So let’s take a look at how to figure that […]

10. […] have been. One question consumers often ask is what their homes have to be appraised at in order to refinance their home. So let’s take a look at how to figure that […]

11. […] have been. One question consumers often ask is what their homes have to be appraised at in order to refinance their home. So let’s take a look at how to figure that […]

12. […] have been. One question consumers often ask is what their homes have to be appraised at in order to refinance their home. So let’s take a look at how to figure that […]

13. […] and divide it into the capital idea closing costs required to complete the refinance. If you can breakeven in 2 to 3 years, this in most cases is normal although in some instances taking longer to […]

# begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!