Questions to Ask When Considering Home Loan Refinance

home mortgageRefinancing a mortgage is something that most homeowners at least consider at some point during the time that they hold a mortgage.  Whether it’s the appeal of a lower rate, a reduced monthly payment, a sense of cost certainty, better lender service or a variety of other reasons, there’s almost always something that holds enough appeal to encourage many people to consider refinancing and causes a significant number to go through with the process.

Deciding whether to refinance, and if so, which mortgage product to select, can be difficult and time consuming.  Asking and answering the following questions can help you through the experience.

What Is My Goal in Refinancing?

While “to get a lower rate” may seem like an obvious answer, and is in fact typically a factor in the decision to refinance most of the time, a surprising amount of the time it’s only one factor among several.  Occasionally people will actually refinance at a higher rate to achieve some other goal, such as moving out of an adjustable rate mortgage with a low rate to attain cost certainty by refinancing with a higher rate fixed interest mortgage.  A cheap home loan isn’t always the best home loan, depending on your circumstances.

By clearly establishing your goals you can much better determine whether refinancing makes sense at a given time and, if you conclude that it is, which product to select.

What Features Are Important to Me?

Determining key mortgage product features can greatly narrow down the number of viable options for you.  For instance, it may be particularly important to you that there be no penalty for early repayment, or you may regard repayment schedule flexibility to be critical, and will only want to consider those choices that contain such features.

Are there New Products on the Market?

Many mortgage experts recommend making an assessment of the mortgage product marketplace every three years to evaluate whether there’s something relatively new that’s available that would make refinancing attractive.  Lenders release new products fairly regularly and some contain previously unavailable features that may make refinancing a good idea for you.

What Will Refinancing Cost Me?

There are typically fees associated with undertaking a refinance that the borrower is required to pay under the umbrella of closing costs.  By obtaining a full accounting of these expenses you can calculate how long it will take to realize savings from a lower rate mortgage and help you determine whether refinancing makes sense for you.

Readers: Have you refinanced a mortgage? What advice would you give someone contemplating a refinance?

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14 Responses to Questions to Ask When Considering Home Loan Refinance

  1. AverageJoe 03/26/2013 at 8:44 am #

    Great tips, Paul. The only point I would add is to ask for the closing documents the day before you sign so you can look them over closely. I’ve seen unscrupulous mortgage companies pull a bait and switch on the fees they charge. When I pointed it out for my client (it happened not once, but on four separate occasions!), every time it was “an accident.” Yeah…..

    • Paul 03/27/2013 at 7:07 pm #

      I had a similar situation with my Title company Joe! Of course it was just an oversite and they apologized! That’s called fraud by the way…

  2. John@MoneyPrinciple 03/24/2013 at 4:49 pm #

    It’s certainly worth checking things every few years. Recently mortgage rates in the UK have dropped a little – just after our latest change :-(.

    But mortgages still represent a very low interest loan so the big question is, why pay it down if (and only if) you can get a better return on investment elsewhere.

    We will see!

    • Paul 03/24/2013 at 6:51 pm #

      I just bought a home John and I have a mortgage with a 3.5% rate and I don’t plan on paying it off!

  3. Brick By Brick Investing | Marvin 03/22/2013 at 1:37 pm #

    We just recently purchased a home and were able to get 3.25%. I can’t imagine that rates could get any lower, but once we pay off 33% in principal amount we may refinance if rates are the same.

    • Paul 03/22/2013 at 9:00 pm #

      Rates started rising just before I bought my home. I ended up with a 3.5% rate and I’m still really happy about that. Rates have never been this low for this long.

  4. Tony@WeOnlyDoThisOnce 03/22/2013 at 12:47 pm #

    Clear insight on the pros and cons, Paul. Great post.

    • Paul 03/22/2013 at 8:59 pm #

      Thanks for stopping by Tony!

  5. Grayson @ Debt Roundup 03/22/2013 at 10:58 am #

    I have been contemplating it for quite a long time, but since I want to sell my home in the next year, I decided against it. yes it will give me some money each month, but those savings would be wiped out by the closing costs.

    • Paul 03/22/2013 at 8:58 pm #

      Don’t blame you for waiting Grayson as you are right about not covering the closing costs. Good luck with the sale!

  6. Midlife Finance 03/22/2013 at 9:43 am #

    My advice is to refinance before you quit your job. 🙂

    • Paul 03/22/2013 at 8:59 pm #

      Just bought a home and have no plans, yet, to quit my day job!

  7. Johnny Moneyseed 03/22/2013 at 5:19 am #

    We just refinanced our house from a 4% 30-year to a 3.25% 30-year. The new mortgage cost us about $7,000 more than the old one, but it makes for an over $200 a month cheaper mortgage payment.

    We calculated that at the 7 year mark we will have the same principle balance and with the lower payments we will save $16,800 over that time.

    • Paul 03/22/2013 at 6:49 am #

      I just bought a home and financed it with a 3.5% mortgage. The only reason not to refinance with these low rates is if you are close to paying off your mortgage and the payback period is longer than the remaining loan term.

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