So you just refinanced your home or investment property. A few months later you see interest rates have dropped to all-time lows, and you are thinking to yourself “Why couldn’t this have happened sooner?” You start wondering if you should refinance again, or if you even can refinance again. If you can relate to this situation or something very similar, we are here to help. An argument can be made both for and against refinancing again.
We’ve all heard, “No you absolutely should not refinance again if you just refinanced.” But how true is this? In cases where you just refinanced, it’s important that you’re able to justify the refinance and why it would make sense for you to do it again.
Fees, Fees, and More Fees
One thing to consider is that the cost of refinancing can really add up when you factor in attorney fees (if you’re in a state which requires an attorney to close the transaction), title insurance, title exam fees, appraisals, loan origination fees, etc. If you recently refinanced, you will have just paid all of these fees and thinking about having to do it again usually doesn’t sit well with most.
Keep in mind that even if you use the same loan originator, most likely, the fees will have to be paid again. However, some fees may not, such as the appraisal fee or you may be able to negotiate a discounted origination fee.
The fees may also be worth it if you can save more money over the life of the loan. Don’t completely rule out a refinance until you’ve had the opportunity to really crunch the numbers.
Another thing to consider is what you did after your first refinance. Was it a cash-out refi and you took the money and made a large purchase? Did you take the money and pay off some debt?
Making a large purchase like buying a car will negatively affect your credit score and debt-to-income ratio especially if you borrowed the money. Make sure your activity after your first refinance didn’t result in new or large debt against your credit profile. It’s important that you’re able to qualify for the loan terms you’re after.
The Current Loan
What about the terms you’ve just agreed to on your last refinance. Some loans have a prepayment penalty for paying off the loan early so you would need to be sure that does not apply. Otherwise, you could be paying even more than you realize for your refinance and if you’re not saving money, you don’t need to do it!
Always pay attention to the long-term benefit. For example, a 30-year note might offer lower payments now, however, if you’re able to get the same interest rate or lower at a 15-year note, you’ll end up saving more money over the life of the loan. Again, it’s important to know the current terms of your loan and the new terms before you begin the refinance process again.
You can put another check in the yes column if you don’t plan on staying in your home for a long time. Refinancing to switch from a fixed rate to an adjustable rate note would be wise for consumers who only plan to own their home for only a few years. An ARM will fluctuate with the rise and fall of the interest rates. You can take advantage of the low interest rates without having to refinance over and over again.
The Long and the Short
An argument for or against refinancing a second time will really be dependent on the fees you are paying. An important term to know is your “break-even point”. If you didn’t hear that on your first go around, you should learn what it means now. Basically, time builds value.
The longer you stay in your home the more equity you will have.
If you recently refinanced, you need to know how long it will take you to break even and recover those closing costs you paid. The fees can range anywhere from 3 to 6 percent of the loan amount.
In simple terms, take the total cost of refinancing (fees) and divide by the amount you will be saving each month.
Weighing the Pros and Cons
Refinancing can be an attractive proposition if you can justify the savings. Typically refinancing means lower monthly payments, which many people are drawn to. And some will argue that yes, you should refinance again even if you recently refinanced, especially if it puts you in a better financial position.
And if you’re in doubt, it’s smart to follow the golden rule: According to Ben Edwards at Money Smart Life, if interest rates are 2% lower than your current rate, you should consider a refinance.
Each situation will be different, and there are pros and cons to both sides of the argument. We’ve presented the facts to help you make the decision. Most importantly, be sure to make the decision that is right for you. It’s hard not to get wrapped up in what your brother, neighbor, or boss says. Please do your own research and use the tools we’ve provided to help make the decision.
Also, be sure and not to make the mortgage refinancing mistakes previously discussed. Many people do not refinance because they can’t see the benefits right away. Typically, with a refinance, the savings happen over time, and you have to be patient to reap the benefits.
If you have any questions about the process and how it works, we are here to help. We provide a unique refinancing option with no application fee, no origination fee, and no underwriting fees. The entire process can be completed online with no paperwork. Interested? Connect with us and get your free quote today!