Experts urge due diligence before mortgage refinance

(InvestigateTV) — In light of the recent interest rate cut by the Federal Reserve, many consumers are wondering if now is a good time to refinance a loan.

There are many reasons to refinance, a major one, being to secure a lower interest rate to reduce monthly loan payments.

Some borrowers might also be looking to shorten the repayment term, to pay off their loan faster. Or some may need to tap into their home’s equity to get access to cash.

Cherry Dale with the Virginia Credit Union urged consumers to do their due diligence before any refinance.

For mortgages, look closely at closing costs, amount owed, and home value. Dale said anyone looking to refinance should use these numbers to calculate the breakeven point on the loan.

“So let’s say it costs you $5,000 to refinance your house and you’re going to save, let’s say $300 dollars a month if you do refinance. Well, you want to take that $5,000, divide it by 300 and you’re looking at 16.7 months, 17 months in general would be your break-even point,” Dale explained. “So, after 17 months you really are going to benefit from refinancing that loan in the long run.”

However, Dale said if people decide to move or sell before their break-even point, it will actually cost more in the long term to refinance.

“So, sitting down, crunching the numbers for your particular situation before you jump into it is really important,” she advised.

Dale said remember that credit score is also a factor for a re-fi. People need a high credit score in order to receive the best rate and maximize benefits.

Some borrowers may need to work on raising their credit score before applying, she said. Borrowers can do this by making payments on time and paying down your debt.

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