When is the Right Time to Refinance My Mortgage

Hi, Eric Maldonado here with Aquila Wealth Advisors. 

Here is a timely question I’ve heard often, “Should I refinance my mortgage?” In this article, I’m going to walk you through the key questions you need to answer to make an informed decision.

Quick Summary

If you purchased your house when interest rates were higher than current record lows, you might be wondering: should I refinance?

You’d think the answer would be simple: a lower interest rate is better, right?

However, the right choice depends on your situation. And with the way fees and mortgage interest work, a refinance can be a bad deal.

Here are 4 key considerations:

1) Know the Change in Total Interest Payments Over the Life of the Mortgage.

How long is the new mortgage term? Mortgage interest is front-loaded. If you get another 30-year loan, you’re likely significantly adding to the total interest you’ll pay for your house.

On the other hand, if you refinance to a 15-year loan and pay off your house faster, it could be a savvy choice.

2) Redirect Monthly Savings and Automate It Toward Your Big Financial Goals.

What are you going to do with any money you take out or save in payments? If you can put it toward your financial goals, refinancing might be a smart money move. However, if the extra money just gets spent in the whirlwind of life, it does not benefit your overall finances.

3) When Do You Break Even on Fees?

What’s it going to cost you to refinance? If you’re looking to lower your monthly payments, make sure you understand how many years it will take to break even on financing fees. If you leave your house before that period is up, you’ll have lost money.

4) Take Into Account Other Miscellaneous Life Events:

What else is going on in your financial life? Do you have other high-interest debt to pay down? Are you expecting any major life events like a job change? Will you qualify for a new mortgage? These all will affect your refinancing decision.

Conclusion

So, while the basic math on a refinance might seem simple, financial decisions rarely are.

Refinancing might make sense for you.

However, in many cases, making extra principal payments at your discretion on your current mortgage might better your long-term finances.

Feel free to let me know if you have any questions or comments.

Warm regards,

Eric Maldonado, CFP®, MBA

Aquila Wealth Advisors

(805)250-4552

eric@aquilawealth.com

www.aquilawealth.com