Ask the Expert: When Do I Refinance My Home?

By: Jas

What is the most critical question to ask myself when refinancing a home?

Is refinancing going to put you in a better position financially? Will refinancing reduce your monthly expenses, meet a critical family requirement, or improve your investment portfolio? If the answer is yes, it is probably a good time to refinance.

What is a cost benefit analysis?

This is a detailed account of the actual cost of refinancing and helps provide the best financial decision. Cost-benefit analysis analyzes the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs When you look at the actual costs of refinancing, determine how long it will take to recoup costs. Is it worth it? A qualified mortgage professional should review your alternatives and help you determine if the benefits outweigh the near and long term costs. The rule of thumb regarding the cost vs. benefit of refinancing is that you need a 1- 2% "spread" between your existing interest rate and today's current rates. Refinancing, No Cash-Out option can reduce your monthly mortgage payment or reduce the remaining term of your loan and thus probably save tens of thousands of dollars in interest over the long-run. Cash-Out withdraws cash (reduces equity) for home improvement, educational tuition, debt consolidation or for such purchases as a investment property or second home, auto, or other major purchase.

How often should I refinance?

Some people refinance frequently but a rule of thumb should be that you have held the property for one year. Refinancing allows the homeowner to use the home to conduct transactions that allow opportunities and possibly enhance the homeowner's asset pool or reduce the financial short-term burden of the homeowner. How the homeowner approaches the refinance is critical to long-term financial net worth. If the homeowner is utilizing the home as a second checking account to payoff consumer debt, financial stability for future years is reduced through ineffective money management by reducing the homeowner's equity. The ability for the consumer to build equity is in essence a long term subtle retirement plan for the homeowner.

What are some questions I can ask the mortgage company or the bank handling my refinancing?

The scope of financial knowledge a mortgage consultant or loan officer possesses matters in this transaction. This person should have a thorough knowledge of money and how it works. Begin by asking about their professional credentials. The best mortgage professionals will have formal business education, professional experience in the financial industry, and the institutional knowledge to place you in the right product. At Breakwater Mortgage in Virginia Beach, we select our mortgage consultants, loan officers, and loan originators based on strengths in these areas. Often lenders, banks, and other mortgage companies do not conduct a detailed review of potential employees that will handle your most important asset. Ask your mortgage professional why they are recommending a certain loan product to you. You should also feel free to ask personal questions such as: Do you own a home? What type of mortgage do you have? What is your credit score? The answers will reveal information about their money management. If you do not feel comfortable with your mortgage professional, research a qualified individual who will help you based on your needs. It's worth it to take the time to find the right mortgage professional.

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