Deciding Whether to Refinance or Not

On a previous Legal Briefs segment, we discussed what steps you need to take to qualify for a refinancing your mortgage. Today we want to continue the discussion on refinancing by talking about the advantages refinancing and things to consider when making that decision.

Scotty Ball, a real estate attorney, with Stewart, Melvin & Frost is with us this morning to talk about things you need to consider as you consider refinancing.

Stewart, Melvin & Frost is one of Northeast Georgia’s oldest and largest regional law firms and is widely respected as an “Uncommon Practice” – the firm features an experienced team of attorneys, each of whom is recognized as an expert in highly specialized areas of the law.

Question: If you are thinking about taking the steps to refinance, what are the advantages of refinancing?

Scotty: One of the main benefits of refinancing is reducing your interest rate. As you grow in your career, your salary increases and you pay your bills on time, your credit score will increase. The higher credit score allows you to receive a loan at lower rates so many people will refinance with their mortgage company to get the better rate.

We all know that a lower interest can have a huge effect on your monthly payment and over time save you a lot of money. Shortening the loan’s term from 30-years to 15-years or converting from an adjustable rate to a fixed-rate mortgage can be other reasons to refinance

Question: Are there risks involved in refinancing?

Scotty: Homeowners often refinance to access the equity in their homes to cover large expenses or pay off debt through a home equity line of credit.

The main pitfall associated with home equity lines of credit is that they sometimes seem to be an easy solution for a borrower who may have fallen into a perpetual cycle of spending, borrowing, spending and sinking deeper into debt. This can lead to a path to never-ending debt.

Question: What fees are involved in refinancing?

Scotty: There are some bank/lender fees for doing the loan, appraisal and handling items to get you through the loan approval process – I call those Bank Fees.  Then there some costs to make sure your title is good and to actually close the transaction properly – I those Legal Fees. And finally of course the government has its hand in the process and there are some recording and tax fees to be paid – I call those Government Fees.

There are many ways of handling those fees and sometimes the Lender can include all of them into the loan so that the Borrower doesn’t have to come out of pocket at closing for these costs.

Question: Are there other factors to consider when thinking about refinancing?

Scotty: If you are considering refinancing, you need to take a hard look at exactly how you will repay the loan.

If you are putting the home equity line of credit you receive from refinancing back into your home for renovations, you would increase the value of the home. So you should get increased revenue when you sell the home. On the other hand, if the line of credit is going to be used for large purchase, like a new car or to pay for college, you should go over your finances closely and make a plan for how you will repay the loan.

It is important contact your mortgage company and discuss the options available to you, as well as discussing with other mortgage companies the options they would make available. Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly.