Should You Refinance Your House in Washington DC?

Should I Refinance My Mortgage in Washington DC?

Mortgage refinancing is all the rage when interest rates drop. Currently it is under 4%! Rates don’t have to drop very far, either, before tons of home owners decide that refinancing their mortgages makes sense. However, refinancing doesn’t always make financial sense for one to consider.

What is Mortgage Refinancing?

Refinancing a mortgage means the homeowners are paying off their existing mortgage and replacing that mortgage with a new loan. Generally, the costs associated with mortgage refinancing are rolled into the loan, meaning they are added to the existing balance, which increases the loan amount.

When a loan amount is increased, a homeowner has a lower amount of equity.

Why Mortgage Refinancing Extends the Term of Your Mortgage

When the term of the loan is extended, it will take longer to pay that mortgage in full. If you took out a loan when you bought your home, it was probably a 30-year loan. Say you decide to refinance your mortgage at the end of 5 years. Instead of looking forward to paying off your loan in 25 years at this point, you will now be paying on that mortgage for a total period of 35 years.

You will make an extra 60 months of payments and pay over $35,000 more over the life of the loan, should you live in the property long enough to pay off your loan. If you decide to sell after mortgage refinancing, you will lose the equity you built up over the years, plus whatever principal balance you had paid down on the original loan.

Costs Associated With Mortgage Refinancing

You will either pay for the costs of mortgage refinancing through a higher interest rate or those fees will be added to your unpaid mortgage balance. There are always fees! Below are the typical fees paid to obtain a refinance:

 

  • Appraisal
  • Title Policy
  • Escrow
  • Loan Points
  • Origination
  • Processing
  • Underwriting
  • Wire
  • Application
  • Administration
  • Reconveyance
  • Credit Report
  • Notary
  • Tax service
  • Recording

It’s hardly worth it to refinance your mortgage to save anything less than $150 a month on your mortgage payment. Most people refinance and only save $15 – $75 a month on their mortgage payment. Most mortgage experts say you should be able to recoup your costs from mortgage refinancing over a 3-year period. If you’ve saved only $15 – $75 a month, it would take 200 months to break even.

Make sure you thoroughly go over all your options before refinancing your mortgage. It may look appealing in the present but in the long run it may not be the most prudent business decision.

About Sir Ashley Harrison

Sir Ashley Harrison is a full-time real estate investor and non-practicing attorney. He does deals throughout the country.

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