Refinancing a Mortgage
The Henssler Financial Group Position Paper

What are the Benefits to Mortgage Refinancing?

The most obvious benefit to refinancing is saving money; a lower interest rate often means a lower monthly payment if the terms of the refinanced mortgage are the same as the original mortgage. Since interest rates are still low, if you have not refinanced in the last few years, you may want to consider it. Secondly, some homeowners opt for a shorter loan term instead of lower payments, so that the house is paid off sooner. Other homeowners take the opportunity to restructure and/or consolidate debt. Taking out a larger mortgage might provide enough extra cash to pay down car loans, credit card debt, or other loans. Lastly, a homeowner may want to refinance with a completely different type of mortgage. For example, someone who has an adjustable-rate mortgage might want to refinance with a fixed-rate mortgage to take advantage of locking in at a low fixed-rate.

When Should I Refinance?

The Henssler Financial Group (THFG) recommends that you consider refinancing when mortgage rates drop low enough that you save money on monthly payments and that the monthly savings recoup the closing costs in a reasonable amount of time. Unfortunately, it is difficult to predict what interest rates will do. Therefore, it is a good idea to refinance when rates reach a point at which you are happy with the potential savings. Waiting for rates to drop further could mean missing the opportunity altogether should interest rates increase instead.

How Do I Determine if Refinancing Will Save Me Money?

Start by mortgage shopping. Ask your current lender and a few others for good faith estimates. It is easier to compare loan costs if you request that the interest rate be quoted without points. Find the loan with the lowest interest rate, lowest monthly payment, and lowest closing costs.

Next, determine your monthly savings by subtracting your current payment from the refinanced mortgage's monthly payment. After that, divide the total cost of refinancing by your monthly savings to determine your break-even point or, in other words, how many months it will take to recoup your closing costs. Before committing to refinancing, you want to make sure that your closing costs will be paid off in a reasonable amount of time and that you will be able to enjoy the monthly savings. For example, if you plan to move in five years, refinancing at a rate that provides enough monthly savings to regain the closing costs in less than one year is, in most cases, worth doing. After the first year, the homeowner will then be saving money for the next four years. However, if it takes four years for the homeowner to recover closing costs, it might not be worth the hassle if the homeowner is likely to move in five years.