Refinancing to a Lower Rate May Be a Bad Idea

Ben Chenault
Nov 25 · 3 min read

Getting a lower interest rate is always a good idea, right? So if interest rates drop below what you currently have for your mortgage, it’s time to refinance, isn’t it?

Nope. Refinancing is always a function of time, and your costs should never outweigh your benefits.

Transaction Costs

People can easily end up paying way too much in transaction costs, but they won’t be in their property long enough to recover those costs. The monthly “savings” won’t actually save them anything by the time they leave that house.

You may have the opportunity to save half a percent on your mortgage loan. On a $200,000 loan, that’s a savings of $1,000 a year in interest. That sounds great and all, but what if you’re only going to be there for a year, and the transaction costs are $3,000? You still lose $2,000 when you refinance your house.

Adding Time

Another thing to remember is that when you refinance, you add years back on to your mortgage. If you’ve been in your house for seven years, you only have 23 years of payments ahead of you. But once you refinance, you’re back to a 30-year timeframe, starting from scratch. That lower rate is less appealing now, isn’t it?

Find a Consultant, Not a Salesperson

When you bring up the topic of refinance, lenders will line up ready to do it for you. But there are not too many who are willing to tell you that it just doesn’t make sense for you.

That’s where we come in. We’re lenders who act as consultants rather than salespeople. As consultants, we can run the analyses and breakeven costs for you. We can tell you whether or not refinancing is in your best interests. If it’s not right for you, we’ll let you know.

If you have questions on refinancing, home equity loans, the mortgage process, or anything to do with home financing, call 205–986–4220, connect with us on social media, or ping our website. We are happy to help in any way we can.

— Ben Chenault,
Certified Mortgage Planner
NMLS# 130305
MortgageBanc / Fairway Nmls# 2289

Copyright©2019 Fairway Independent Mortgage Corporation doing business as MortgageBanc. NMLS#2289.4750 S. Biltmore Lane, Madison, WI 53718, 1–866–912–4800. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Business Oversight under the California Finance Lenders Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License. Georgia Residential Mortgage Licensee #21158. Licensed Nevada Mortgage Lender.

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