Why is it that some homeowners may never refinance their mortgage while others refinance frequently? Sure there are some financial benefits that come from refinancing, but there are also a few “hassles” that go along with the process. And frankly, for some the benefits simply do not outweigh the hassle.
Don’t Call Me Lazy
Let’s face it. We all have visited a friend’s house to find dust bunnies under the couch or unfolded laundry lying on the floor. But laziness is usually not the culprit when a homeowner opts to not refinance. In these cases, the homeowner may simply decide not to refinance because they are happy with their current monthly mortgage payment. For these folks, the opportunity to lower their monthly mortgage payment is simply not worth the time and energy it takes to first investigate refinancing options, then compare lenders and finally pay closing costs and other fees associated with a refinance. It’s not a simple or quick process – and they recognize this.
In a climate where interest rates are ever changing, perhaps for some homeowners the savings just isn’t enough to go through the process. They may already have a decent interest rate – one that they are comfortable with. For these homeowners, going through the refinance process isn’t worth the small savings they’d receive.
Factors to Consider
In order to figure out whether or not going through the hassle of refinancing really pays, homeowners should look at the following factors:
- What is your monthly savings? Homeowners need to figure out how much they’d pay under the new lower-interest rate (using a mortgage calculator). Subtract that amount from the current monthly mortgage and that difference is your monthly savings.
- What is the total cost to refinance? The process isn’t free. There are points and closing costs, loan fees, title searches and appraisal costs to consider.
- How many months will it take to pay off the refinance? Divide your total costs by your monthly savings.
Example: If the total cost to refinance is $3,300 and your monthly savings is $150, it will take 22 months for you to break even. If you don’t plan to stay in your home for that long, then it doesn’t pay to refinance.
The bottom line is that refinancing a mortgage is truly a personal decision. Some homeowners will jump at the chance to save a little money, while other may be content with the “status quo.” It really is an individual preference.