You may have received a phone call, mailer, or email with the promise of low rates and lower payments. Below are some thoughts to consider before you refinance.

The most basic analysis is to compare the savings to the costs. For example, if the costs are $2,500 and the savings is $100 per month, then it would take 25 months ($2,500/$100) to recover the costs. So, if you continue to live in the home for more than 25 months, you will benefit from the refinance. If you are going to live in the house for less than 25 months, then it would not benefit you to refinance.

Another level of analysis, that most do not consider, is the long-term consequences of a refinance. Every time you obtain a loan, the lender informs you of the amount of interest you will pay over the life of the loan. For example, if you obtained a $400,000 mortgage at 4%, you would pay back $400,000 over 30 years, and $287,478.42 in interest. Therefore, to borrow $400,000, it will cost you $687,478.42. When you refinance, you should consider decreasing the amount of interest that would need to be paid over the life of the loan.

The more years you are into your mortgage, the less interest that is left to be paid. Even though you may be able to get a lower rate, and lower payment, you may have to pay more interest over the life of the new loan than what is remaining in the existing loan. If this is the case, then you may not want to refinance.

Contact us at Counsel Mortgage Group. We have helped many customers decide the best path to take with refinance and lowering payments.

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