Refinancing as a long term strategy

Published on Jul 01, 2021

Refinancing as a long term strategy

Refinancing. You’re certainly familiar with the term. The draw of lower interest rates and monthly payments sounds enticing, but is it worth the hassle?

The answer is maybe. It’s all about the numbers, and making them work for you. Refinancing can be a great contribution to a long-term financial strategy. Let’s look at a few factors to consider when making this decision.

What is refinancing?

Refinancing basically means getting a new mortgage on your house. The money borrowed with the new loan pays off the old loan. There may be several reasons people consider refinancing. The top reason tends to be lowering your monthly payments or lowering your interest rate. This sounds great, but  There are factors to consider.

How long will you stay?

Refinancing, as with any mortgage, carries some costs. Origination fees, closing costs and percentage points mean money out of pocket. When you refinance, you can expect to pay a few thousand dollars to cover such things like credit checks, appraisals, and title search fees, to name a few. To find out if this is worth the cost, you will want to calculate your breakeven point. Total up the amount of fees you will pay. Next divide this by how much money you will save monthly with the new loan. This gives you the number of months before you begin to start saving on the refinance.

It is important to note that there are some banks that specialize in refinancing such as Valley. We offer lower closing costs, which may help you reduce your breakeven point in terms of the number of months you plan on remaining in your home.

If you plan to move soon, this may not be worth the cost. On the other hand, if you expect to be in this house for many more years, a longer breakeven point may be worth your while.

What are your current terms?

There are many types of mortgages and you should be aware of the terms of each. Knowing the advantages of each type of loan will help you in your decision process with regard to refinancing.