Shop around
Unlike when you are buying a home in an extremely competitive market, you don’t need extremely tight timelines so I highly advise that you shop around. The typical lenders that we might turn to for a purchase may not be the best options for a refinance. Most lenders prioritize purchases anyways so refinances will always take a little longer.
Calculate savings
It would be easy to calculate your savings with your current mortgage payment with the new proposed payment. This would actually give you an inaccurate monthly savings because your new loan will be lower since you’ve had your existing mortgage for a while. In order to get a more accurate savings, use your current mortgage balance and calculate the new rate versus the old rate. A website like mortgagecalculator.org is a great tool to do this.
Analyze the fees
Fees can range from title and escrow to appraisal and underwriting fees. There is no right or wrong amount of fees so long as you understand and accept them. Some lenders will advertise a no cost refinance, which sounds great until you dive into the fees. They may mean that it’s no cost from them, but you may still need to pay title and escrow fees.
Some lenders may also advertise a “no cost out of pocket” refinance but what they may end up doing is increasing your loan amount to cover the fees. While you are not paying out of pocket, you will be paying interest on the fees over the life of the loan.
Putting this all together
There is no one size fits all for refinancing a mortgage. Depending on your loan amount, loan to value ratio, credit score, relationship with the bank, etc, you may be offered better terms. What is most important, in my opinion, is that you recoup the costs of refinancing in a timely manner. A refinance may cost you $3,000 but if you are saving $500 a month and can recoup the costs in a timely manner, it might just be worth it. Conversely, if it costs you $3,000 to refinance but you are saving $50 a month and it ends up taking years to recoup the costs, it might not be worth the costs or efforts.
As always, if you have any questions or would like referrals to lenders that we know, feel free to reach out to us.