When Should You do a home loan Refinance

A home loan refinance is a transaction that replaces your current home loan with a new home loan, which offers more favorable terms than your previous mortgage.  A home loan refinance should only be done if there is a net-tangible benefit for you and your family.  The new loan must function in a way that is an improvement on your current status; basically, to make you better off--one way or another--from where you are now.  Lenders will monitor and verify the benefits with you before the final approval takes place on the new home loan. 

Over the last few years lenders have come under fire for allowing brokers to originate loans that clearly were not beneficial in any capacity to the borrower.  Today there are several disclosures included in the loan application with the specific purpose of helping you define what the benefits will be with the new loan.  If you need help confirming if your reason for refinancing is acceptable or not, you might want to consider any of these acceptable rationales for refinancing your home loan.

1.      The new home loan will lower my payments with an interest rate reduction.

2.      I want to move my existing home loan from a 15 year loan to a 30 year loan; this will help lower my payments enough so that I can comfortably afford the payments.

3.      My current loan is an Adjustable Rate Mortgage and I want to refinance that loan into a Fixed Rate.

4.      I have accumulated a considerable amount of debt outside my current mortgage, and by refinancing my current mortgage I am able to consolidate that debt into one simple home loan.  The new loan will also considerably decrease my monthly obligations. 

5.      I have been instructed by the court in my separation agreement to refinance the loan from out of my spouse’s name and into my name only.

6.      We have recently had a death in the family and I now want to refinance the loan to be in my name only.

7.      We are in need of upgrading the home and additional funds are required to finance these changes in the home.

8.      Home values have increased considerably since we bought our home, and we would like to refinance our first and second mortgages into one loan, as well as eliminate the need for mortgage insurance.

9.      I have been in a negative amortization loan, and I have recently discovered that the payments I am making are not even at a high enough level to pay the interest on the existing loan.  I would like to refinance my home so that I eliminate the negative amortization portions of the loan.

If in fact you fall under any one of these circumstances, then it would be beneficial to choose to refinance.  A lender will approve the new loan with the promise that it will be a benefit to you.

There are also a number of situations where a benefit might initially be presented, but when analyzed completely the benefit no longer exists.  Under these circumstances a lender may still approve the refinance, but a proficient mortgage broker should use their duty of good faith and advise you not to refinance.  Most people will appreciate the fact that their best interests are honored by the mortgage broker. If we do our jobs as we should, the decision to hold off will be logical to you.

Most mortgage brokers do not receive compensation unless they close a transaction for you, so it should be noted that talking you out of a refinance might work against the mortgage originator.  Whenever something of this nature is brought up it will be in your best interest to pay special attention to everything that is said.  The most common situation where something like this unfolds is when a homeowner plans on being in their property for a short period of time.  For example, you might be able to lower your payments $200, through a 1% rate reduction to your 30 year fixed rate.  On the surface this strikes one as being a great deal, but let us now assume you will be moving out of this house sometime in the next two years.  24 months worth of savings will equate to about $4800, which is moderate, but if doing the loan costs you $5000, you are no better off after you sell your home than if you had done nothing at all.

The most important thing you can do when deciding whether or not to refinance your home now is to talk to your trusted mortgage professional.  Hopefully, you have a relationship with your broker that has been developed to the point of open and honest communication. Having a compelling relationship with your broker will permit you both to deliberate over the best approach to your long term home refinancing goals.  While assessing your needs, all of the benefits and the detractions should be evaluated.  If the benefits outweigh the detractions to you and your family, then, without a doubt, a refinance makes perfect sense.  Anyone refinancing their home through my services is treated as if they were part of my family, and I will only make the recommendation if the benefit to you is clearly visible.