Should I Refinance my Mortgage?

August 25, 2020
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With interest rates near all-time lows, there have been a record number of applications for refinances. In fact, if you’ve reached out to your mortgage broker recently, you may have found them completely swamped with requests and a little slow to respond!

With interest rates this low, just about everyone could save some interest by refinancing. But is it worth it? It all depends on your plan – more specifically, your breakeven point after considering the refinance fees.

Outline of typical fees

Variable Fees

  • Loan Origination – Typically 1% of loan balance ($3,000 on a $300,000 loan)

Fixed Fees

  • Credit report fee - $25 to $50
  • Application - $100 to $500
  • Appraisal - $300 to $500
  • Documentation - $100 to $400
  • Title search - $200 to $400
  • Title insurance - $400 to $500
  • Recording fee - $25 to $250

 

I typically want to see a break even in less than 2 years to consider making a change – preferably closer to 1 or 1 ½ years. This will depend on the size of the loan, your home plans, and your payment plan.

  • Larger loans are typically going to see faster breakeven. Smaller loans still have to pay most of those fixed fees above regardless of the size of the loan
  • If you plan to move in the next few years, it may not be worth it. Homeowners often over estimate how long they will stay in a home – the average across the US is only 6 years.
  • If you’re making extra principle payments and tackling the debt, you might be better off sticking with your current higher rate and getting it paid down quickly!

 

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide mortgage, legal, accounting, or tax advice. This information is not intended to be a substitute for specific individualized mortgage, legal, accounting, or tax advice. We suggest that you discuss your specific situation with a qualified mortgage, tax or legal advisor and/or licensed realtor.  The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to implementing a strategy. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.