EchoBay Expert: We're thinking of refinancing our home, in which we are in year 8 of a 30 year mortgage, but there's a possibility we may not be in the house more than 5 or 6 years. What are the most critical things that could affect our decision whether to do mortgage refinancing or not? Thank you.
Loyal Reader: The first thing you want to do is make sure that you're not going to wind up in the red because of your mortgage refinancing. The goal of refinancing is to save money, but if your mortgage refinancing isn't approached properly, it could wind up actually costing you money.
If you're not going to be in the house for longer than five or six years, the first thing you're going to want to do is take the cost of refinancing and then divide it by the amount of money you'll be saving each month. Make sure that the figures indicate that you'll be in the house long enough to recoup the costs of refinancing.
You'll also want to make sure that your loan doesn't have any prepayment penalties attached to it. If you're being given the option of paying points to pay down your interest rate, you might want to rethink that. If you're going to be moving in a few years, you probably won't make your money back.
You could also go with an adjustable-rate mortgage, and if it turns out that you'll be staying in your home longer than you had anticipated, you can refinance into a fixed-rate mortgage later on. Just make sure that in the end, all of the money that goes into the refinancing eventually winds up back in your pocket.