Why my clients refinance into a higher rate
When you are looking to refinance the first thing you commonly think about is rate. Of course, unless you have an alternative reason for refinancing (i.e life event). So why then would you ever refinance into a rate that is higher than the low rates we hear about?
It all goes back to mechanics of mortgage finance. You may be thinking , Ray, did you lose your mind? Not at all! So first thing to understand is a term called a breakeven. This is how long it takes for your refinance to make sense. For example, if it costs $4,000 and you save $100 a month, then you need to stay in that home for 40 months ($4,000/$100) to make up the cost.
From there , lenders can credit you for these fees. Typically this is done with pricing. So you may end up with a slightly higher rate, but a shorter breakeven. Why? How long ago did you refinance last? Are you thinking of doing it now? Did your current loan “breakeven” yet? These are all things to think about.
I have recently helped multiple families refinance into comfortable new mortgages with nice savings. A handful of them also started with their new balance effectively what the payoff of their existing mortgage was (and no they did not bring a bunch of cash to closing). So their breakeven is close to 0 months. Even if they had to sell in 2 years it made sense to refinance. Also the reduction in cost of interest means they will pay their balance down faster.
The conversation gets much more in depth than this, but I would rather not bore you with my geeking out over numbers. Call for details 303.779.0591 x 101