Learn How To Replace Your Current Loan With A New Loan

Refinancing Basics

What is Refinancing All About

When you refinance, you pay off your existing mortgage and create a new one. You may even decide to combine both a primary mortgage and a second mortgage into a new loan. Refinancing may remind you of obtaining your original mortgage, since you may encounter many of the same procedures and the same types of costs the second time around.

Refinancing a mortgage allows you to replace your current loan with a new loan, allowing for many potential financial benefits.

  • Get a lower interest rate
  • Get a shorter term
  • Get a lower interest rate AND shorter term
  • Switch from an adjustable-rate mortgage to a fixed-rate loan
  • Get cash out of the home’s equity

How do you decide if a refinance is right for you?

Because there are fees and costs associated with a refinance, just like with your purchase, you want to make sure that the immediate relief you receive will have a long-term positive impact. In other words, is it worth it to pay $3500 to refinance into a lower interest rate that only saves you $2400 over the life of the loan?

Your breakeven point is when your monthly savings will cover the cost of refinancing. To calculate this, estimate your savings based on your new monthly payment after the refinance. Divide the fees and costs of the refinance by your estimated monthly savings.

For example:
Cost to refinance: $2000.00 – Monthly savings is $100.00

Your break even point is 20 months. If you stay in your house 20 months, you’ll break even. Once you hit that point, the true savings kick in and for every year beyond that point, you’ll see a savings of $1200 a year. The longer it takes to get to your break even point, or if you think you won’t be staying in your home past the break even point, you may want to press pause on the refinance for now.