To Refinance or Not Refinance

Posted on by Lisa Barton to Real Estate News

We spoke to Mike Hendrickson, Sr. Mortgage Consultant at U.S. Bank, to get his thoughts on refinancing your mortgage. Here's what he had to say:

There is a frenzy created by ads and mailers telling us NOW is the time to refinance! I am getting a lot of calls from clients asking about it. My goal with this note is to discuss the pros and cons of refinancing your mortgage. I always discuss these with each client and search for the tangible benefits that make it worthwhile (or not) for them. 

Considerations: First of all, yes, rates are low, but are they low enough to benefit you? Here, there is a general rule of thumb: your new rate should be at least ¾ of a point lower than your current rate. I like to use the 1% rule as the minimum. So, if rates today are 3.5% and you have anything below 4.2% currently, then you might not want to move ahead. If you took out your mortgage from 2014 through mid-year 2018, you probably are not going to want to refinance. On the other hand, if you took out your mortgage in the last two-quarters of 2018 or the beginning of 2019, you might just be sitting at 4.5% or above and want to take a look at your refinancing options. 

Options: Given the rule of thumb above, there are other attractive reasons to refinance anyway. Maybe you need to take cash out, maybe you want to switch to a 15-year mortgage, or maybe a refinance is the only way to eliminate your current PMI. In these cases, that rate differential does not matter as much as long as you are getting a better rate or term. 

Action Plan: What’s the best way to cut through all the hype when looking at whether you should move ahead with a straight refinance? First, make sure you will recoup your closing costs in a short period of time (3 years or less) AND that you will be staying in your current home for 3 years or more. As a rule of thumb, in Florida, it will cost you 1.5% of the new mortgage to close. So, if you owe $500,000 you can expect to pay $7500.00 in costs – you can choose out-of-pocket or roll that into the loan. To calculate the $7500.00 payment, simply divide it by 36 and you get $208.33 per month. This represents the minimum you will need to save per month in order to have it make sense for you.  

Please feel free to call me 7 days a week for a free, no-obligation mortgage review to see when and if you should refinance.

Please note this discussion in no way represents a rate quote but rather is designed to give you tools to understand what drives rates and how to spot trends. Your specific rate also depends on a number of factors like down payment, credit score, etc.    

This article was prepared by:
Mike Hendrickson
Sr. Mortgage Consultant
U.S. Bank
904-614-0309

comments powered by Disqus