9 Things Every Homeowner Absolutely
Must Consider When Refinancing
There’s no doubt that refinancing your home is as big a decision as it was to buy it in the
first place. It is a huge financial decision. A decision you do not want to take lightly. Here
are the most important things to consider when refinancing your home.
These considerations are in no particular order of importance.
1. What Will You Do With The Monthly Savings –
With most refinances you should experience a monthly savings. This is accomplished by
either consolidating debt, lowering your interest rate, extending the terms of the loan or a
combination there of.
The only time you may not experience a monthly savings would be if you shorten the
term of your loan. For example if you were to go from a 30 year loan to a 15 year loan.
However, it is still possible to realize a monthly savings even when shortening the term if
you are dropping your interest rate enough or are consolidating debt.
Now the big question you should be asking yourself is what should you do with those
monthly savings. In other words if you were saving $250 a month, what should you do
with that money?
The problem with these monthly savings is that they get consumed very quickly if you do
not act right away and choose to use them in the right way. Often times people will say
“Oh look, we have an extra $250 a month to spend, let’s finance a boat.” Or something
along those lines.
There are multiple things you can do with those monthly savings and any of these may be
an option for you.
1. Apply the monthly savings back towards your principle – Adding one extra
payment to your mortgage each year will knock off about 7 years of 30 year loan.
Typically your monthly savings will be more than enough to help you make one
extra payment over the year.
2. Apply the monthly savings towards any other debt you may have – If you were
unable to consolidate some or all of your debt. Applying those monthly savings
from your refinance can get you out of debt in no time.
It’s key that you pick one debt and apply any or all of your extra payments
towards that debt. It will get paid off quickly. Once that debt is paid off go after
the next one and so on. You’ll be amazed out how quickly you can get things paid
3. Create a rainy day savings fund – Before the two things mentioned above. We
would highly recommend creating a savings account that has at least 3 to 6
months worth of payments.
This rainy day fund is an excellent way to feel secure in knowing that you have
several months worth of bills saved should anything happen. Once the fund is
created you can start using the other methods.
4. Invest your monthly savings – This can take the form of having more of your
paycheck set aside for your 401K or buying stocks, bonds, mutual funds or CD’s.
This is much like the rainy day fund as most of your investments will be liquid
should an emergency arise.
5. Consider a shorter term – see below.
2. Should You Shorten The Term Of Your Loan
There are definitely pros and cons of deciding to go with a shorter loan term for your
refinance. Here are some things you should consider.
Most people decide to go with a 30 year loan when refinancing. However, that may not
be the right choice for you. If you have been paying on a 30 year loan for 5 years and
then refinance into a 30 year loan. You are basically starting the clock over. That may
very well be worth it to you to achieve the monthly savings you need or desire. And
choosing to go with the longer term could actually get you out of debt much faster by
using the monthly savings in the ways outlined above.
If you have been paying on your 30 year loan for 5 to 10 years consider going with a 20
year mortgage. The interest rate will be the same if not slightly better and you will be
several years ahead or at the same pace to getting your home paid off.
If you have been paying on your 30 year loan for 10 to 15 years consider going with a 15
year mortgage. The interest rate will be significantly better than the 30 year loan rate and
you will be several years ahead or at the same pace to getting your home paid off.
The savings can be huge by shortening the term of your loan. If your monthly payments
were $1,500 a month and you shortened the term of your loan by 5 years, you would save
yourself $90,000 in payments. That’s huge!
The downside to shortening the term of your loan is that the payments will be higher than
a longer term loan. But, if you know that you lack the discipline to use the monthly
savings in positive way. The shorter term forces you to get it paid off sooner.
3. What Will Your Break Even Point Be?
The break even point is the point at which your fees have been recouped by the monthly
savings. To figure out your break even point, you simply divide your one time fees
(points, title, escrow, appraisal, underwriting, etc. do not include taxes, insurance or
interest) by your monthly savings.
For example: If your one time fees totaled $3500 and your monthly savings was $150.
Your break even point would be 23.33 months or about 2 years.
If you were planning on selling the home in less than two years then a refinance probably
does not make sense. However, you may still need or want to refinance given your
particular financial position. And of course we would certainly help you with that.
4. Should You Go With The Lowest Rate You Can Find?
Almost always the lowest rate will also come with higher fees. The questions is, is it
worth it? The answer is, it depends.
Lower rates mean lower payments. Lower payments mean more monthly savings.
Because of this the lower rate will save you more over the life of your loan.
If you are planning on keeping the home for 5 years or more it is almost always worth
going with the lower rate. This is because the break even point will typically be achieved
in 2 to 5 years.
5. Should You Go With The Lowest Fees?
Almost always lower fees come with a higher interest rate. Again the questions is, is it
The lower fees decrease the size of your loan because you are financing fewer fees into
the loan. The break even point will almost always be shorter. But it does come with
some expensive consequences.
Below I have given you an example to look at between going with the lowest rate or the
Comparison Of Lowest Fee or Lowest Rate
Let’s assume your are getting a loan at 80% of your homes value, paying off $20,000 in
debt and your combined monthly payments including your mortgage and other debts was
Lower Rate example –
Loan Amount: $200,000
Loan Term: 30 year fixed
Rate: 5.5% 5.713% APR
Principal and Interest: $1,135.58
Monthly Savings: $249.42
Break Even Point: 24.06 months
Life Time Savings In Monthly Payments: $89,640
Interest Paid Over Life Of Loan: $208,808.08
Lower Fee example –
Loan Amount: $198,000 (you are paying $2,000 less in fees)
Loan Term: 30 year fixed
Rate: 5.875% 6.103% APR
Principal and Interest: $1,183.08
Monthly Savings: $201.92
Break Even Point: 19.81 months
Life Time Savings In Monthly Payments: $74,691.20
Interest Paid Over Life Of Loan: $223,648.12
As you can see there is not a whole bunch of difference between the two as far as costs or
the break even point. But what is really eye opening is the difference in the monthly
payment savings over the life of the loan and the interest paid over the life of the loan.
The example of the lowest fees saves you $2,000 up front. But it actually ends up costing
you $29,788.04 more over the life of the loan.
This is just an example to show you what some of your options are. If you would like us
to run a comparison for you based on your situation. You can give us a call at 541-773-
6. Adjustable Rate Mortgage Or Fixed Rate Mortgage?
Most adjustable rate mortgages have a period of time where they are fixed. Once that
time period has expired they will start to adjust. ARM’s can have fixed periods of 1 year,
3 years, 5 years, 7 years and 10 years. ARM’s almost always have a significantly lower
interest rate than fixed loans. These loans can sometimes be as much as 1% better than
what you could get on a 30 year fixed.
There are definitely times when an adjustable rate mortgage or ARM makes complete
and total financial sense. The main scenario when you would consider using an ARM
would be if you know for sure that you are planning on selling or refinancing your home
with in a certain period of time.
For example, if you knew that you were going to retire in 5 years and move to another
state. Then a 5 year ARM would make good financial sense. You could take advantage of
the lower rate and payments while you are waiting to retire.
The one thing to keep in mind is that things can change. And if the risk of an ARM is too
great then you should consider going with a fixed rate. We can help you determine if the
risk is too great for an ARM.
With fixed rate loans the only way that the payment will increase or decrease is if your
taxes and insurance go up or down, assuming they are included in your monthly payment.
7. Can You Take Advantage Of A Streamline Refinance?
If you currently have an FHA or VA loan you may be able take advantage of the
The streamline comes with very limited fees and allows you to take advantage of lower
rates. The down fall is that you can get no cash in hand or payoff any debts. It is strictly
for the purpose of getting a lower rate.
There is no reason to worry about the value of your home as there is no appraisal
8. What Is The Value Of Your Home?
The value of your home is one of the most important pieces when considering a
refinance, unless you are doing a streamline.
The reason why it is so important is that it dictates what we can and can not do as far as
If you want to get cash out or consolidate your debts. You are limited to getting a loan
amount of 85% of your homes value.
If you just want to take advantage of lower rates, you are limited to 97% of your homes
If you are upside down in your home, there is an option that will allow you to go to 125%
of your homes value. You can not get any cash out.
If you are unsure of your home’s value there are two websites we can recommend you
use to get an idea of the value, Zillow.Com and Cyberhomes.Com. Please keep in mind
that until an appraisal is completed there is no way to know for sure what your home is
worth. But we have found these sites to be fairly accurate.
These web sites can be way off if there are multiple units, large acreage, or it is a
9. Why You Want To Use Cox, Beard, Hall and Associates To
Help With Your Refinance.
Hopefully from the information provided in this report you realize that we are good at
what we do and that we are extremely knowledgeable.
We go above and beyond the person at the bank that just fills out an application. We
provide the expert advice that you need with such a huge financial decision.
The majority of the time we beat the banks rates. The banks get lucky every one in a
We work with over 20 different lenders and provide virtually every type of loan you
could ever want. In other words we’re not stuck selling just the products and interest rates
from one bank. That’s important because they are not all the same.
Almost every single one our loan officers and staff has over 8 years of experience in the
We have an impeccable reputation in the Valley.
We don’t charge application fees like many banks do.
What are you waiting for? Give us a call at 541-773-3131 and let’s talk about your
refinance. There’s no cost or obligation to speak with us.
The staff at Cox, Beard, Hall and Associates
Cox, Beard, Hall and Associates, LLC
502 W Main Suite 101
Medford OR 97501
Equal Housing Lender