Time to Refinance? What your mortgage broker wont tell you

December 05, 2023

Rates are falling and you might think this is a good time to refinance. But is it? When does it makes sense to refinance?

You should consider refinancing when the savings generated from refinancing your old mortgage is greater than the costs of originating a new mortgage.

First, let’s look at the costs. The typical cost to underwrite a mortgage are 1% of the loan amount. So if your loan is $500,000 the underwriting fee would be $5,000. You will also likely incur out of pocket expenses that include an application fee, attorney fee, title search, appraisal, and a local recording fee. Expect to pay another 1/2% for these fees or an additional $2,500.

Now, let’s look at your savings. For this, you will need a mortgage calculator or go online to www.mortgagecalculator.org. Input  your expected new mortgage interest rate, loan amount and new term to maturity. Subtract the total monthly payments on your new loan from the total monthly expenses on your old loan. This is your gross savings. 

Does the savings exceed the costs? Remember, your out of pocket costs are in today's dollars and your savings are spread out over the term of the new loan so the savings are somewhat exaggerated. 

In short, you need to compare the costs of refinancing to the savings generated. Just because you are paying less per month doesn’t mean you are saving money. This is especially true if you do not intend to own your home long term.