When Does Refinancing Actually Make Sense and Here Is the Simple Math Every Homeowner Should Know

The Refinance Question Every Homeowner Eventually Asks

When does refinancing actually make sense? Moses Alford gets this question consistently and the answer does not require complicated mortgage jargon. It requires one simple calculation that every homeowner can run in about thirty seconds.

The Break-Even Calculation

Take what the refinance is going to cost you and divide it by how much you will save every month. That gives you your break-even point in months.

If refinancing costs four thousand dollars and saves you two hundred and fifty dollars per month you divide four thousand by two hundred and fifty and arrive at sixteen months. That is how long it takes for the monthly savings to recover the upfront cost of the refinance.

If you are planning to stay in the home and keep the loan longer than sixteen months the conversation starts getting genuinely interesting. If you are planning to sell or pay off the loan before that point the refinance may not produce the financial benefit it appears to offer on the surface.

What Moses Does With That Math

Here is the part that separates a lender who is running numbers from a lender who is giving advice. Just because Moses can refinance someone does not mean he should.

His job is to run the numbers and tell the truth. If the math makes sense and the break-even point falls within a timeframe that aligns with how long the client plans to keep the loan they move forward. If the math does not make sense they wait. Watching the market together until the right moment arrives is a better outcome than putting someone into a loan that does not make financial sense for their situation.

The goal is not to generate another mortgage transaction. The goal is to make sure the next move is a smart one for the client and that requires an honest look at the numbers rather than an enthusiastic pitch about lower rates.

How to Find Out If the Math Works for You

Comment the word MATH below and Moses Alford will run the numbers with you. Bring your current rate, your remaining balance, and a general sense of how long you plan to stay in the home. Everything else follows from there.

Sources

ConsumerFinancialProtectionBureau.gov
MortgageNewsDaily.com
Investopedia.com
FannieMae.com
BankRate.com