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Refinancing Your Mortgage: The Tipping Point

The Tipping Point: When Refinancing Your Mortgage Does Not Pay

The Tipping Point: When Refinancing Your Mortgage Does Not Pay

Orange County, CA – Normally, refinancing your mortgage is an opportunity to reduce your payments on a month by month basis. And for most people this makes life just a little bit easier.  Of course though, you should put some considered thought into refinancing before you make the leap.

For instance, you might find that if you’ve refinanced before, then doing so again may not be cost effective. You need to assess the savings relative to the cost of the refinance. Lowering your mortgage payments is one thing, but calculating the costs for doing so is another. A lower rate may not make sense when you factor in the cost to reduce your payment and the time that you’ll have the loan.

Before you decide that refinancing your mortgage makes sense you need to think about your goals.

  1. How long do you plan on having the loan/home? Time is a very important consideration when determining the loan program that’s most suitable for you. It’s also vital in analyzing if a refinance makes financial sense. This can be difficult to figure out, so conservative estimates should be used.
  2. Are you hoping to reduce the expense of your monthly payments? You may actually find that there is as much to gain by extending the loan back out to thirty years again.
  3. Are you looking for a debt consolidation opportunity? You may have a first mortgage and a home equity loan, and drawing the two together might make a lot of sense to you.
  4. You might also find that you no longer want to be in an adjustable rate mortgage. Refinancing your mortgage may allow you to fix your monthly repayment for the life of the loan. ARM’s can be attractive because they offer lower interest rates over fixed programs. In a neutral or declining interest rate environment they can be a wise choice. But when rates are expected to rise an ARM can be risky and the appeal of security increases. For example, at this point in time, interest rates are expected to rise over time. If you opt for a 5 year ARM then it is highly likely that interest rates will be higher than current rates when the note begins to adjust. This means that your payments will be going up. The only way to prevent this would be to pay off the note, sell the home or refinancing your mortgage again.

Assessing everything together can make the decision to refinance a difficult one. But you can’t make an informed decision without first getting the necessary information. Naturally we would recommend you speak to us in order to understand the ins and outs of your personal circumstances. We can assess your financials and goals and calculate break even periods for you. After that you’ll be adequately armed to make the decision that’s best for you.

Scott Storace

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