FINANCIAL TOOLS & RESOURCES

When to Refinance

Home mortgage refinancing is always an option, but it does not always make good financial sense for everyone.

When Should I Refinance My Home Mortgage?

There are three options to consider when refinancing:

  • Do you want to obtain a lower monthly payment?
  • Do you want to pay off your mortgage early?
  • Do you want a lower monthly payment without lengthening the term of your loan?

In addition to these options, also consider how long it will take you to get back the money you spend on your home mortgage refinance closing costs with the savings in your monthly payments.

You need to know your current rate and the rate at which you would refinance.

Virtually all home mortgage refinances at a lower rate will pay for your home mortgage refinance costs eventually. The questions become:

  • How soon do you want to realize these savings?
  • Will you realize these savings before you expect to purchase another home?

If you expect to live in your home for another three to five years, your monthly savings will generally offset the costs of your home mortgage refinance within that time.

If you plan to stay in your property for a shorter period, or if it will take significantly longer to recognize your monthly savings, you may want to consider other options.

You may also want to evaluate how many years will be added to your mortgage payments. You may not want to add another 10 or 15 years to your mortgage payments if you only have 10 years remaining.

You may want to pay off your mortgage early. To do this, consider refinancing to the lower payment, but continue making a higher payment to pay off the mortgage early.

Finally, you may not want to extend the term of your loan. Review the new rate and payment based on the remaining years you have left on your current mortgage and determine if you have monthly savings.

How Much Can I Expect In Home Mortgage Refinancing Costs?

Home mortgage refinancing costs are very much like the costs paid for your original mortgage. These costs may include, but are not limited to:

  • Appraisal fee
  • Property survey
  • Hazard insurance
  • Attorney/legal fees
  • Mortgage insurance, if applicable
  • Loan origination fees
  • Title search/insurance fees
  • Credit report fee
  • Flood determination fee

The sum of these fees could cost you up to 2-5% of the loan amount, depending on your property location. But there are options available to deal with these costs.

Depending on what you are trying to accomplish, a home equity loan or line of credit may be the right option. State Farm Bank® can help you unlock the value of your home. A State Farm Bank Home Equity Loan or Home Equity Line of Credit can help you tap into the equity you have built up to accomplish any number of tasks:

  • Consolidation of high interest debt
  • Home improvements
  • Education expenses
  • Medical expenses

This information is intended to help you ask the right questions when considering a possible refinancing of your loan or a home equity product. For more information, contact a participating bank agent in your area or call State Farm Bank toll-free 888-556-3498.