There are probably many lifesaving tips people have thrown you to help you determine the right time to refinance your home. You may have heard that the interest rate on the new loan must be at least two percent less than the old loan or it is not a good decision. Another frequently quoted, but just as frequently incorrect statement, is that if your loan is less than two years old, you shouldn’t refinance it now.

Neither of these statements is entirely correct, and it can be extremely difficult to receive unbiased and accurate information about the refinancing decision and process. It is my desire to offer you a clear, concise guide to help answer your questions about refinancing. This page has been designed to provide unbiased information that will help you make an educated decision about whether you should refinance your home mortgage.

If you need clarification on mortgage terminology, visit the Mortgage Dictionary for definitions. Call Bruce Specter if you want to discuss refinancing your home mortgage.


What is refinancing and when should I refinance my home mortgage?

What is involved when I refinance?

The Top 10 Mistakes of Refinancing Your Home Mortgage

What should I do if I'm still not sure I should refinance?

What is refinancing and when should I refinance my home mortgage?

When you refinance, you pay off your existing mortgage loan by taking out a new mortgage loan. The refinance process is very similar to the process you went through to purchase your house in the first place.

Would refinancing your loan benefit you by saving you money in interest and possibly freeing up some extra cash? There are several good reasons to refinance. If interest rates are lower now than when you originally bought your house, then refinancing can save you money each month in interest or help you pay off your debt faster. If the remaining mortgage balance, including points and closing costs, can be refinanced at a reduced monthly payment and still be paid off within your existing mortgage payment term, then refinancing would be highly advisable. 

Also, if you have equity built up in your home you may be able to get a "cash out" refinance. You can then use the cash from the equity in your home on such things as college tuition, paying off higher interest rate debts, such as credit cards, home improvements, etc. And the added bonus is that the cash you get from your "cash out" refinance may even be tax deductible, but you would need to confirm that with your tax preparer or accountant.

You will want to consider the following factors when deciding whether or not to refinance:

The amount of reduction in the mortgage interest rate

The amount of reduction in the monthly payment

Eliminating Mortgage Insurance

Any prepayment penalties on the old mortgage

The amount of closing costs, including any points, loan origination fees, application    fees, inspection fees, appraisal fees, title insurance, mortgage insurance, etc

The number of years you plan to keep your home

Will refinancing right now save you money? Contact Bruce Specter and he will gladly discuss the current refinancing options that would best suit your situation today!

What is involved when I refinance?

When you refinance, the proceeds from your new mortgage loan are used to pay off your old mortgage. Even if you use the same lender, this is true. You are not simply re-negotiating the terms of the old mortgage—such as reducing the interest rate.

The old note you signed will be returned along with the mortgage contract, and your lender will file a Mortgage Record Change. You will sign a new note and mortgage contract that your new lender will record. No money will pass through your hands unless you borrow more than your old mortgage balance. However, you must pay for points and closing costs unless you finance those as well as the old mortgage balance.

You need to expect that your home will have to be appraised again. Your credit history will be reviewed again, and there will probably be changes in your mortgage and title insurance. Of course, money doesn't just grow on trees; but if it is truly the right time for you to refinance, then with the money you will be saving after 12 to 18 months, you should begin to feel like your money trees are in full bloom!

The Top 10 Mistakes of Refinancing Your Home Mortgage

1) Refinancing with your existing lender without shopping around. Your existing lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current mortgage company.  In most cases your current mortgage company will require the same documentation as other companies. This is because most loans are sold on the secondary market and have to be approved independently. So even if you have been very good at making payments to your existing lender, they will still have to do their verifications all over again.

 2) Not doing a break-even analysis. Find out what the total cost of the refinance is, then figure out how much you will save every month. Divide the total cost by the monthly savings to get the number of months you will have to stay in the property to break-even on your refinancing costs. Example: if your refinance costs $2000 and you save $50/month your break-even is 2000/50 = 40 months. You should refinance if you plan to stay in the house for at least 40 months.   Note: The break-even analysis only works if you are refinancing to save money. If you are refinancing to switch from an adjustable to a fixed or from a 30-yr. loan to a 15-yr. loan, it is much more difficult to perform a break-even analysis.

3) Not getting a written good faith estimate of closing costs. Your mortgage company is required to provide you with a written good faith estimate of closing costs within 3 working days of receiving the application.

4) Paying for an appraisal when you think that the house may appraise too low. Have the appraisal company do a desk review appraisal (typically at no charge) to provide you with a range of possible values. I have access to data that can give us an idea of what property values are in your neighborhood.  Do not waste your money on a full appraisal if you are doubtful about the value of your house.

5) Using the county tax assessors value as the market value of your house. Mortgage companies do not use the county tax assessor’s value to determine whether they will make the loan. Instead they use a market value appraisal which may be very different from the assessed value.

6) Signing your loan documents without reviewing them. Do not sign documents in a hurry. Whenever possible try to get documents that you will be signing ahead of time so you can review them. It is advisable to ask for a copy of all loan papers you are signing a few days ahead of the close of escrow. This way you can review them and get your questions answered. Do not expect to read all the documents during the closing. There is rarely enough time to do that.  If you have any questions, do not sign and, if you are working with me, call me.  Remember, the only dumb questions was the one you DIDN'T ask!

7) Not providing documents to your mortgage company in a timely manner. When your mortgage company asks you for additional paperwork - jump on it! Do not complain. They are trying to get you approved, not trying to hassle you unnecessarily! Jump through the hoops as quickly as possible. Many borrowers do not respond to documentation need quickly and can wind up paying higher rates if the rate lock expires.

8) Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate get a written statement that details the interest rate, the length of the rate lock and details about the program.  Many times, less than honest loan officers will tell it's locked, 'float' the market hoping to make a little extra income.  If the market gets worse, they may try to increase your rate.  Always get a signed lock confirmation.  Period.

9) Pulling cash out of your credit line before you refinance your first mortgage. Many lenders have "cash-out" seasoning requirements (usually 1 year). This means that if you pull cash out of your credit line for anything other than home improvements, they will consider the refinance to be a "cash-out" refinance. This leads to much stricter requirements and can in some cases break the deal!

10) Getting a second mortgage before you refinance your first mortgage. Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company if getting a second will cause your refinance to get turned down.

What should I do if I'm still not sure I should refinance?

If after reviewing this information you are still not sure whether you should refinance your home, it is time to call on someone specifically trained to help you interpret your individual mortgage situation. Bruce Specter will meet with you at no cost to consider your refinancing needs.

I am trained to take care of all those details for you, and will gladly met with you at your convenience to discuss your specific refinancing situation. This consultation is absolutely free, and there will be no obligations if you decide this is not the right time for you to refinance.

Remember that refinancing your home mortgage need not be a tedious, overwhelming task. Give me a call or send me an email and let me show you just how quick and hassle-free creating increased cash flow through your home mortgage refinance can be!

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This page was last updated on 11/06/05.