Should I Refinance My Mortgage?

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Should I Refinance My Mortgage?

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January 04, 2012

These past couple of years many clients have asked about whether or not they should refinance their mortgage. Along with people who have never refinanced, those that did even 18 months ago may be licking their chops to do the tango for another refinance in 2012. For the week that ended December 23rd, the 30-year mortgage rate fell to 4.05% which was the lowest in 60 years according to HSH Associates which is a mortgage data firm. The rates have gotten better in the jumbo market for those with a mortgage above $417,000 as well, but if you are below that number here are some considerations about whether a refinance is right for you.

1.) How long will you live in the home? - One of the first questions you need to assess is how long you think you will stay at your current residence. Or, if you leave the residence will you decide to use it as a rental property? This is an important question because there is always going to be some associated cost with doing a refinance. Knowing how long you think you will live in the home can help you decide in part what is the right type of mortgage to get when you refinance, and will also be a factor when ascertaining a breakeven analysis from doing the refinance?

2.) How much is it going to cost me? - Sometimes you will see the term 'zero-cost financing' or 'zero-cost refinance'. Remember, that there is always a cost to do business. Sometimes, the cost will be represented in items such as closing costs or paying points to buy down your mortgage rates. Sometimes, the lender will loan you the money at a higher interest rate and choose to absorb the costs of doing the refinance. It is also possible that costs will just be rolled into the loan making your home mortgage balance slightly larger without materially affecting the interest payments.

3.) How much will I save monthly? - Once you calculate all of the numbers for doing the refinance, you should be able to come up with how much money you will save monthly. Remember, all of the refinancing in the world doesn't do a heck of a lot of good if you don't put the savings to good use. This may mean paying down your consumer debt quicker, increasing your retirement contributions at work, or simply making the same mortgage payment to the lender which will pay down your mortgage quicker. Just don't spend it!

4.) What is my break even number?- Once you know how much the refinance is going to cost you and you know how much you are going to save monthly, you can calculate how many months you need to stay in the home to break even. This is why the very first question on how long will you live in the home is an important question. If it is going to take you three years to break even and you might move in the next year or two, the refinance may not be worth it especially if you have no plans to use it as a rental home.

5.) Did I realize I just reset the clock?- The last point I'll make is that if you exchange a new 30 year mortgage for the old 30 year mortgage, you reset the 30 year clock. This seems obvious, but people who refinance 3 or 4 times over a 10 year period may be adding what would normally be a 30 year mortgage life into a 40 year mortgage life. One good part of goal planning is to try to pick an age where you want the mortgage paid off in full for good. This may be at the time you try to make work optional such as 50, 55, or 60. Not having a mortgage gives you lots of freedom for choices about what do and creates a much less stress free environment.

You should always consult a qualified mortgage broker, financial advisor, or CPA before making a major decision to go through all of the math on whether the refinance makes sense. It can be a very good smart money move to start the New Year off right, and remember that interest rates won't stay low forever.

Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20's, 30's, and 40's in the country.

Written by:

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Co-CEO and Founder of oXYGen Financial, Inc

Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.

Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice. This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 844-553-7872.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.