<< Frequently Asked Questions (FAQ)

Should I refinance?

The most common reason for refinancing is to save money by getting a lower interest rate to reduce your monthly mortgage payment or by reducing the term of the loan to save money over the life of the loan.

Refinancing from a 30 year loan to a 15 year loan may result in higher monthly payments, but the total of the payments made during the life of the loan can be reduced significantly.

In addition, you can refinance to convert your adjustable loan to a fixed loan to get the stability and the security of a fixed loan. Fixed loans are popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher.

Also, homeowners refinance to consolidate debts and replace high-interest loans with a low-rate mortgage. The loans being consolidated may include second mortgages, credit lines, student loans, credit cards, etc. In many cases, debt consolidation results in tax savings, since consumers loans are not tax deductible, while a mortgage loan is tax deductible.

Since no two homeowners are in the exact same situation. Even the conventional wisdom of refinancing when you can save 2% on your mortgage is not true. If you are refinancing to save money on your monthly payments, the following calculation is more appropriate than the rule of 2%:

�         A. Calculate the total cost of your refinance (e.g., $2,000)

�         B. Calculate the monthly savings (e.g., $100 per month)

�         Divide A by B (e.g., 2000/100 = 20 months) to show your break-even time. If you plan to live in the house for longer than this period of time, it makes sense to refinance.

Sometimes, you are forced to refinance if you have a loan with a balloon provision, but with no conversion option and it is best for you to refinance a few months before the balloon comes due.

In short, to save time, money and ease your concerns, consult with a seasoned mortgage professional crunch on few mortgage calculators and take time to understand your options.