Refinance

Utah Mortgage Refinance

One of the most commonly asked questions by homeowners has to do with refinancing the home in Utah.  While the answers to this question might seem at times to be obvious, there is often a little more to evaluating the numbers than to simply go with a rule of thumb buzz that may be floating out there.  Utah mortgage refinance advertisements tout no cost mortgage refinances as the best thing since sliced bread, or focus entirely on interest rate without discussing the closing costs and possible buy down points.  So how do you determine if a refinance is good for you?

First, lets review the pros and cons of the no cost refinance.  Regardless of claims made via advertisements or any other medium, a no cost mortgage refinance may be your most expensive option.  The reason for this is that you always pay a higher interest rate in exchange for not paying closing costs.  Some mortgage companies push the no cost refinance because the advertisement is easy to explain.  In the background however is a slew of numbers that are crunched to make these loans work.  Basically speaking, mortgage companies are paid by the lender- even if that lender is itself- based on the interest rate charged.  The higher the rate, the more the lender is paid in yield spread and service release premiums.  Some lenders take that added money and use it to cover your closing costs.  As a result, these mortgages are good for short term mortgages.  If you plan on moving inside a year or two it may be an excellent option.  If you plan on staying more than 2-3 years you will usually pay more in interest on these loans than you would have paid in closing costs on a regular Utah mortgage refinance.

Secondly, lets tackle the “don’t refinance unless you save 1%” rule.  Many professional and amateur financial experts use the reduction in interest rate thumb rule as a general recommendation for the masses.  The problem with this rule of thumb is that the savings you get is often related to the loan size you have.  All mortgages have fixed closing costs that have to be covered, regardless of loan size.  These costs include the appraisal, underwriting and credit report fees, including other title charges and so forth.  As a result, the smaller the loan size the greater the reduction in interest rate needs to be in order for you to make your closing costs profitable.  Someone with a $300,000.00 loan size may benefit by a ¼% reduction in rate, while someone with a $75,000.00 may need a full 1% reduction to make the refinance beneficial.

Finally, it is important to determine how long  you plan to keep the mortgage.  The longer the mortgage is kept, the greater the savings you realize from the refinance.  If you know you will keep the mortgage for more than 5 years you do not need as great a reduction in rate to realize savings.

These are a few of the factors you should consider when deciding on refinancing.  At Trillion Mortgage, we are committed to offering sound advice on determining if a Utah mortgage refinance is a good step for you, and if so what kind of a refinanced loan is in your best interest.  To get a free consultation, simply fill out the  “get a quote” section and we will contact  you.  You may also call us at 855-2Trillion (855-284-5546).  We are eager to assist and remain committed to assisting you in getting the best value available.

By: +Mark Schow

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