In today’s crazy market with interest rates being all over the board and most people getting bombarded with information about refinancing, we often get what the ideal situation for a refinance is. Typically, we tell borrowers to wait until they can lower their interest rate at least a full percentage point before refinancing. Then, the closing costs associated with a refinance make more sense. Of course, there are always exceptions to the rule. It depends on your loan amount, how much you have paid your loan down from the last time you took out a loan, as well as the type of refinance that you are looking at.
For a veteran borrower, there are situations where refinancing down just .50% can be beneficial. If you are a veteran who has VA disability, there are definite advantages. Since you are not obligated to a funding fee, skipping a payment and getting your escrow account reimbursed to you could make it worth your while to refinance. The larger the loan amount, the larger your savings will be if you reduce your interest rate.
One thing we usually recommend to borrowers is to have a game plan. If you continue to make the same mortgage payments you made before the refinance, and you put the payment that you skip along with your escrow balance towards your principal, you are sure to reduce your mortgage at a faster pace than if you just make the minimum monthly payments. We have had 19 customers in the last 6 years payoff their mortgages in full by reducing their interest rate and continuing to make the larger payments they were making before the refinance.
Another thing to consider in a refinance is the logical side of it. If the mortgage company that you are using approaches you about a refinance at “no cost” to lower your interest rate for .25%, look at the paperwork closely. There is always a fee to do a loan whether you are paying closing costs or they are extending your loan back out to its original term. There is no such thing as a free loan.
One thing to note, however, is that if you get any solicitations in the mail about refinancing your home loan, make sure to do your homework and look into the company that is sending you the mail. Many of these companies have changed their names multiple times to avoid going out of business because they aren’t always honest in their business dealings. You should always check a company out through the Better Business Bureau and their “DBA” names as well. A lot of companies avoid legal ramifications by changing their business name.
If you have any questions about your mortgage needs, please contact Creekside Mortgage, Inc. at 360.571.LOAN (5626).