Refinance Services

What Can a Refinance do for Me?

Refinancing your home can mean saving lots of money for many potential refinance loan customers. If you have an existing mortgage, and you want to save money, then read on. If you have an existing mortgage and you want to free some cash for a big project, that's a different topic. If you already have two mortgages, that's yet another topic for discussion as well. But don't worry, we can give information on all these financial situations. First, let's take a look at how you can save money on your existing single mortgage.

First, what does it mean to save money on a refinance? It means that if you refinance the correct way, over the lifetime of your loan period, you will end up paying less money than if you had not refinanced. Even with the cost of refinancing figured into the equation, the idea is still to come out ahead. If you are considering refinancing, then make sure your savings minus your refinance costs are a net profit! Sounds simple, right? Just keep that in mind as you make your way through the refinancing process, and you will wind up saving money. Don't lose sight of the goal in refinancing and you probably can't go wrong. The product of refinancing, or your new mortgage, must end up costing you less money over the lifetime of the loan.

What Are the Costs of Refinancing?

In order to calculate whether a particular refinance package is going to save you money, you of course need to know the costs of refinancing. There are a few main types of fees that will apply to just about any refinance loan you could get:

1. Monthly payments on both mortgages, of both principal and interest
2. Origination costs, which means settlements costs like points...basically the fees to the lender.
3. Lost interest on both the origination costs and the monthly payemnts

Some refinance loans come with no settlement costs. This type of loan is called no-cost loan and it sounds like a good thing, right? Who would willingly pay loan fees? Why choose the refinance that comes with extra fees, over the refinance loan that comes with no costs? Well, there's more to a no-cost loan than just the absence of fees. You pay a price for the no-cost loan, and that price is higher interest rates. So, while you may be paying less money up front for a no-cost loan, over time you will pay more and more in higher interest rates. The longer you keep the new no-cost loan, the more expensive it becomes as higher interest rates make the total paid amount over the life of the loan higher and higher.

It makes sense to take out a no-cost refinance loan, thereby paying higher interest rates than you would had you paid settlement fees up front, if you plan to have the new loan just a few years. That way, you end up paying the slightly higher interest rate only three or four years, while saving money on settlement fees, coming out ahead. You will have to calculate very carefully at which point in time it will not be cost-effective any longer, to keep the new no-cost loan. If you expect to keep the new loan longer than this, then it makes sense to pay those up-front refinance closing costs, bite the bullet, to secure a lower interest rate. In summary: to save money on a refinance package where you intend to keep the loan for more than four years or so, pay your own origination fees rather than having the lender pay them for you.

For most borrowers of refinance loans, it does make more sense to pay the origination fee, since most refinance customers keep the loan for more than three or four years. They pay the refinance costs up front, then recover these incurred costs over time through lower interest payments. The point at which you recover your costs of refinancing your loan is called the break-even period.