Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.
Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”
1. Assess Your PenaltyUnlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.
2. Calculate Your Potential SavingsWith any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.
3. Understand All Costs and FeesYou can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.
4. Gather DocumentsNo matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.