Issue 2.12
I get this question on a weekly basis. Am I too old to re-finance my mortgage? And, secondly how far below my current rate does the market have to drop before it makes sense for us to re-finance?
First, we are never too old to re-finance. Second, it makes sense to re-finance your mortgage when it does not cost you anything, and you can lower your payments and still keep the same number of years that you have in your current loan.
Let me explain. There is not a magic percentage that the market must drop in order for it to make sense for us to re-finance. The main concerns is what is the cost of re-financing or what are my closing costs and how long will it take me to make the cost of the re-finance up in the savings I will receive on a monthly basis from the re-finance.
Today, most banks and lenders can customize a loan that fits your needs and still takes advantage of today’s record low interest rates. The main concerns I have with re-finances are the closing costs. So, most lenders can provide a no-fee loan, where they are wrapping your closing costs into the interest rate. So, you may pay a higher interest rate than the best rate on the market, but you are saving your closing costs. So, in essence it is not costing us any money to close and we will start saving immediately on a monthly basis. Usually, it is a no-brainer to look at re-financing when you can lower your interest and reduce your monthly payment while not costing you any money.
If you can take out a “NO-FEE” loan, and reduce your payment than most likely it makes sense no matter how old we are.
The only other matter that I like to look at is that I don’t want my client’s to extend the amount of years that it will take to pay off our existing loan. So, if we have a 30 year fixed mortgage and we have had it for the past four years, but we would like to re-finance at a lower rate to save some money, but we don’t want to because it will extend the 30 year period again and start the same process, well our thinking is off. We don’t have to extend the period of the loan just because we are re-financing. This is a misnomer.
You always have the option of keeping the same schedule with your re-finance if it makes you more comfortable to stay on task in paying your home off. That is if we are lucky enough to do this. So, no one needs to re-set the number of years it will take to pay off their loan just by re-financing.
So, give us a call or talk to your local lender about re-financing using a “no-fee” loan and strategize whether you want to keep the same amortization or you want to enjoy the monthly savings. But, to answer our question from the beginning is you are never too old to re-finance if it saves us money. But, we only want to re-finance if the savings are a benefit over the closing costs and thereby looking at a no-fee loan.
Brandon Hansen is a senior mortgage banker for Cherry Creek Mortgage and a Registered Investment Advisor Representative in St. George and SunRiver. www.seniorbankingtoday.com 435-525 2266 / 435-773-4164.