Refinancing a mortgage? Make sure that’s really going to cut your total costs
Charles and Nancy Henson refinanced their home mortgage last year, and Charles Henson says it was not a difficult decision. “The rates had dropped, and we wanted to do something a little more secure,’’ he said.
“Our previous rate was 5.625 [percent] . . . We ended up locking it in at 4.875.’’
Low mortgage rates have spurred many to consider refinancing - basically replacing one loan with another. Depending on the new loan’s terms, it can save you tens of thousands of dollars.
Every refinancing is its own case, due to many factors: your loan, your credit, your home’s equity, the interest rate, the cost of the refinancing, and so on. Some things to consider:
■Interest rate. “If you can save half a point or more on your interest rate, that can be a good indicator to refinance,’’ said Kay Sandusky of Citizens National Bank of Southwestern Ohio.
■Total cost benefit. Kim Penner of Union Savings Bank said you have to consider total costs when considering refinancing. “Your lowest interest rate alone is not always your best deal,’’ Penner said. “You have to see if it makes sense to get a lower rate if your costs are high.’’
Sandusky added: “If it is going to cost you $2,000 to do the refinance and you are saving $200 per month, do the math and consider how long you will be in the home and if that is a savings to you.’’
“How long you’re going to be in the home is a big factor,’’ Penner said. “If someone is going to live in the house three to five years, [refinancing] may not be a great idea.’’
■Short term vs. long term. “Think about what term of loan you want,’’ Penner said. “Is cash flow an issue? Are you looking at retiring?’’
He added that the sooner you pay off a loan, the more you save on interest payments. “The difference in interest could be $40,000, $50,000, $60,000,’’ Penner said.
Henson is retired and his wife is self-employed, but he said they chose a 30-year rate because it was a more conservative approach, given the economic climate. They “decided we could make a 30-year into a 15 by paying more on the principal each year,’’ Henson said. “With a 30-year rate, you have the flexibility if you want to pay extra.’’
■Credit score. Borrowers who have at least a 740 get the best terms. If your credit score is lower, you can still get a loan, but at a higher interest rate.
■Know your home’s equity. “You have to have 20 percent equity in your home for a conventional loan without private mortgage insurance,’’ Sandusky said, though there are other options.
■ Talk to a professional. “I ask a lot of questions about the borrower and offer options,’’ Penner said.
If you shop around, don’t let banks obtain your credit report each time.
“Multiple inquiries on your credit report in a short period of time is harmful to your credit,’’ Sandusky said. “Know your credit and tell the bank.’’
Jill Kelley writes for Cox Newspapers. 
