Should You Refinance Your Mortgage? Questions to Ask First

Refinancing a mortgage means replacing your current home loan with a new one, usually to get a lower interest rate, change the length of the loan or access some of your home equity. For many homeowners it can create real savings, but refinancing also comes with costs, so it is important to look at the full picture before moving forward.

The right decision depends on your current loan, today's rates, how long you plan to stay in your home and what you want to achieve. Working through a few key questions can help you decide whether refinancing makes sense now.

What is your goal?

Start by clarifying why you want to refinance. Some homeowners want a lower monthly payment. Others want to switch from an adjustable rate to a fixed rate for stability, or shorten their loan from thirty years to fifteen to pay it off faster and save on interest. Some use a cash-out refinance to fund home improvements or consolidate higher-interest debt.

Each goal leads to a different type of loan, and each carries different trade-offs. A shorter term may raise your monthly payment even as it lowers your total interest, while a cash-out refinance increases the amount you owe on your home.

A refinance makes sense when the long-term savings clearly outweigh the upfront costs.

Will you stay long enough to break even?

Refinancing involves closing costs, which can include application fees, appraisal fees, title insurance and other charges. In New York, some refinances may also involve mortgage recording tax depending on how the loan is structured. To find your break-even point, divide your total closing costs by your expected monthly savings. If you plan to stay in the home longer than that period, refinancing may be worthwhile.

Also consider your credit score, your home's current value and your debt-to-income ratio, since these affect the rate you can qualify for. Gathering pay stubs, tax returns and current mortgage statements ahead of time will make the application process smoother.

Finally, compare offers from more than one lender. Rates, fees and terms can vary widely, and even a small difference in rate can add up over the life of a loan. Ask each lender for a loan estimate so you can compare them side by side.

The mortgage specialists at Expert Finance Service help homeowners in Monroe, Orange County and across the Hudson Valley decide whether refinancing is right for them. Contact us for a free refinance review.