For Sale By Owner Homes / Mortgage Blog

Mortgage Refinancing Fact vs. Fiction: These 5 Facts Can Potentially Put Money in Your Pocket

Mortgage refinancing was practically a national pastime in recent years. And, because some people consider themselves an expert once they’ve done something once, a lot of mythology developed around the subject of mortgage refinancing. Before you consider a refinance in today’s market, be sure you’re working with facts — not fiction.

Mortgage refinancing facts

Fiction: If you can lower your rate by a half-percent, it’s always worth it to refi!
Fact: It all depends on what you pay in up-front costs, and how long you actually keep the home or the loan. If you pay 3% in closing costs to lower your rate by a half-percent—and then sell or refinance again the next year, the only one who’s probably making money by mortgage refinancing is your lender.

Fiction: If you have an adjustable rate (ARM), switching to a fixed rate should be your first priority when mortgage refinancing.
Fact: Many a mortgage professional — from the loan agent to the mortgage company owner — will choose an adjustable rate over a fixed rate mortgage, depending on their circumstances. That’s because they’re number crunchers by nature, and will run the numbers to determine whether their out-of-pocket costs in the first few years will be less with an ARM or a 30 year fixed rate mortgage. When the numbers favor an ARM, it can be the loan of choice.

Fiction: The only smart mortgage refinance is one with no up-front costs.
Fact: Again, it all depends. Lenders have to cover their costs, plus make a profit. If they’re not charging you up-front, they’re likely charging you with a higher interest rate, and possibly a prepayment penalty on the back end. Depending on how long you plan to keep the loan, the “no cost” loan could end up costing you more!

Fiction: Mortgage refinancing is all about the interest rate — the lower the better.
Fact: You guessed it! The truth, once again, is “it depends.” The very lowest interest rate will probably require higher points and fees. Someone will have to crunch the numbers to find the break-even point, when the costs you’ve paid up-front are offset by the reduced rate. Make sure your plan to keep the loan is consistent with the loan you choose.

Fiction: You’d be crazy to refinance from a fixed rate to an adjustable.
Fact: Hardly! Mortgage refinancing is done to achieve a number of goals — securing the lowest fixed rate is only one. For many, reducing their mortgage payment is the goal — and ARMs may be much better suited to that objective. Those who don’t plan to stay in a home for 30 years may not want to pay more for a feature they won’t use?