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Does Refinancing Work for You?

September 4, 2012

Before you take the plunge on refinancing your mortgage, think about how long you plan to stay in your home and how much the refinance is going to cost. If you’re not careful, refinancing could actually end up costing more than it saves!

Remember, refinancing a mortgage is a labour-intensive process. It involves loan officers, underwriters, servicing people, appraisers, and legal services –plus most of these participants charge a fee.

Here is an example

Let’s say you can refinance at a 1% lower interest rate, which decreases your monthly payment by $100. But let’s also assume your closing costs on the refinance are $3,000, which means it’ll take 30 months to cover your costs. That’s why it’s important to know how long you plan to live there. If you end up moving in a couple of years (or in fewer than 30 months), you’ll actually lose money!

Of course, if you have excellent credit and a pristine payment history, you may be offered a “no-fee” refinance, which makes the decision easy, right? Not always! Refinancing still costs the bank the same amount of money, so chances are they’re burying their fees somewhere in the deal–likely in the form of a higher interest rate!

Should you refinance?

When considering whether refinancing makes sense for you, you should always find a mortgage advisor who will analyze your situation, review your current mortgage and outline all the costs and benefits. By accessing specialized lenders with highly competitive rates, terms and conditions, a professional mortgage advisor will help you come out ahead on your refinance!