HOME REFINANCE? YOU DO THE MATH!

When my mom, who was in her nineties with short-term memory loss, was asked her age, she would say, “I was born in 1923, you do the math!”  Couldn’t help but quote her here, when we talk about whether it makes sense to refinance – take her advice and do the math before you plunge in.

Certainly, with the current drop in the Federal Reserve benchmark rate on Tuesday, mortgage rates will likely fall possibly, “below 3% …and frankly that would be a once-in-a-lifetime refinancing opportunity,” says Guy Cecala, publisher of Inside Mortgage Finance, quoted by the Wall Street Journal.

How do you go about figuring out if it makes sense for you? Certainly, with the help of your financial advisor, a good mortgage broker or your bank’s mortgage department. But here are a few things you should consider:

 1. Look at the difference (spread) between your current rate and the rate you will   be getting and calculate your savings.  

2. Calculate the cost to refinance (you should get this from your bank or mortgage broker), including title insurance, appraisal, attorney fees, refinancing fees, New York State Mortgage Tax (.8% of loan amount.  This mortgage tax can be mitigated with a program called CEMA – consolidated extension modification agreement – ask about it.

3. Rule of thumb: consider a refi if the difference in mortgage rates is at least ½ or 1 percentage point and cost to refi will be recouped in 2-3 years.  If you are planning to move in a year, it may not make sense.

4. Consider a refi not just to reduce your monthly mortgage payment but to reduce the term of your loan and pay it back faster.  You will save on interest and be free of your monthly mortgage nut sooner!

5. Consider a refi if you have an adjustable-rate mortgage (ARM) loan to lower the rate and/or fix it at the low rate.

It’s a good time to take stock of your finances and see if you can save by refinancing.  Visit your banker, call you financial advisor or call us if you would like more information. 

Source: Wall Street Journal, “Home Refinancing Looks Attractive, but First Do the Math,” March 4, 2020, page B12.