You bought your home three years ago at 6.5 percent. Rates just dropped to 5.2 percent. You’re wondering if you should refinance. Here’s what actually makes sense.
What Refinancing Actually Is
Refinancing means you pay off your existing mortgage with a new mortgage. You’re replacing one loan with another. The new loan has a new rate, new terms, and new closing costs.
The goal is usually one of three things: lower your interest rate and monthly payment, shorten your loan term so you pay off faster, or cash out equity to pay off debt or fund something else.
When Refinancing Makes Sense
Rates dropped more than half a percent below your current rate. At that point, the savings usually exceed closing costs within three to five years.
You want to shorten your loan term. You’re at 30 years but you want to pay it off in 15. Refinancing into a shorter term locks in a commitment.
You have significant equity and you want to access it for home repairs, debt payoff, or other needs. A cash-out refinance lets you borrow against that equity.
Your credit improved since you bought. Better credit means lower rates. Refinancing captures that improvement.
You’re in an adjustable rate mortgage and rates are climbing. Locking into a fixed rate protects you.
Cash-Out Refinancing: Accessing Your Equity
You’ve paid down your mortgage. You’ve built equity. Now you need money for a kitchen remodel, to pay off credit card debt, or for an investment opportunity. Cash-out refinancing lets you borrow against that equity.
Here’s how it works: Your home is worth 400,000 dollars. You owe 250,000 dollars on your mortgage. You have 150,000 dollars in equity. You refinance for 300,000 dollars. You get 50,000 dollars in cash at closing and your new mortgage is 300,000 dollars.
The tradeoff: your new loan amount is higher, so your payment goes up even if rates dropped. But you have cash in hand to use however you need it.
Rick structures cash-out refinances for borrowers who need liquidity without selling the home. It’s a powerful tool.
When Refinancing Doesn’t Make Sense
You’re refinancing just to lower your payment by thirty dollars a month when closing costs are three thousand dollars. The math doesn’t work.
You plan to sell or move in the next two years. You won’t recoup closing costs in that timeline.
Your current rate is already competitive and rates haven’t moved significantly.
The Break-Even Math
Closing costs on a refinance typically run one to three percent of the loan amount. On a 300,000 dollar loan, that’s three thousand to nine thousand dollars.
If your new rate saves you one hundred dollars a month, break-even is 30 to 90 months — two and a half to seven and a half years. If you plan to stay longer than that, refinancing makes sense. If you’re selling in two years, it doesn’t.
Rick runs the break-even calculation for you. He shows you exactly how many months until refinancing pays for itself.
Refinancing Timeline
Refinancing follows the same timeline as a purchase: pre-approval to closing is 30 to 45 days. Your rate lock applies to your refinance just like a purchase. Appraisal and underwriting happen the same way.
The difference: no realtor, no inspection, no negotiation. It’s just you, your lender, and your home.
Your Next Step
Rates move. Your situation changes. Rick analyzes whether refinancing makes sense for your specific numbers and your timeline. Chat with me below or call 954-734-4440, and we’ll map out exactly what works for your situation. Or visit www.RickCogswell.com to get started right now.