Should I Refinance?

Today a client called me and told me that he and his wife have been on the fence about refinancing for a while but they have been receiving so much mail about reducing their monthly payment that they finally started looking into it. They are afraid of making a move that will mess up the sweet situation they currently have with built up equity and a comfortable lifestyle! Here’s my email to my clients, hopefully it can help you too!

Hi Allison!

I was speaking with Joe earlier about how refinancing works.

It’s very simple and goes something like this:

How it works:
You get a new loan from a bank to pay off an existing loan.

The REASON people refinance is for many reasons but here are the most common:

1. Lower your monthly payment
2. Pull equity out of their home
3. Shorter time frame to pay back loan (15 years, 20 years, 30 years)
4. Attain different loan terms

Your Goal
You want to reduce your monthly payment.

Your Scenario
You would replace your current loan (approximately $190,000) with a new loan with a lower rate. If your current rate is 4.75% then because of the state of interest rates in today’s market, you should be able to replace it with a loan that has a lower rate, therefore reducing your monthly mortgage payment.

There are different types of institutions that give out refinance loans.

1. Large Direct Lenders (Wells Fargo, Chase, Bank of America, Credit Unions)
2. Broker’s (they don’t give you the money directly, they find you a bank that will.)
3. Private Direct Lenders (they give you the money directly and only handle loans).

What type of institution is the best for you?

I would say in your scenario, where you’d like to reduce your payment, but don’t have any time frames to abide by (you’re not in a hurry), you should go with the lender that will give you the best rate (they are pretty similar) but most importantly has the least amount of fee’s since fee’s tend to kill profits, especially in refinances.

A Warning: When you refinance, you can chose how many years you have to payoff the entire balance. If you currently have a 30 year loan and you are 7 years into it, that means in 23 years, you’ll have the loan paid off.

If you replace your current loan with a new 30 year loan, it’s going to take you another 30 years to pay this loan off. However, you have the option to chose a loan with a shorter payoff term such as 15 years. Some of these shorter term loans even offer lower rates.

The best bet is to speak with the loan officer about the different options they have for refinancing.

Again, since I would say that your priority is getting a low rate and low fee’s, I recommend that you speak with a Large Direct Lender. They can provide a refinance with low fee’s.

Best of luck and let me know if you need anything else!