Vickie Perry

These days the word refinance is everywhere. Often clients will call asking what the word refinance means and if they should consider doing it. The answer to the first part is easy: To refinance your mortgage means you will pay off your current home loan and replace it with a new one. You might receive a new term (length of loan), a new interest rate, or a new type of mortgage all together, but the collateral securing the mortgage will remain unchanged. The answer to the second part varies from situation to situation.

One of the first considerations to refinancing is the costs involved. Some lenders use the terms “no-cost” refinance. Although legal, I view this phrase as a bit misleading. Most people hear “no-cost” and believe they can obtain a refinance for free. This is definitely not the case. The term “no-cost” generally means you do not have to pay any costs out of pocket, but it does not mean there are no costs associated with your refinance. “No costs” simply means the closing costs are either added to your loan balance or you are paying a higher interest rate.

Fees associated with your refinance are typically very similar to those when you originally purchased. However, these days your credit rating has a substantial impact to your fees. Extracting equity from your home (cash-out refinance) also impacts the fees involved. Some lenders charge extra fees to offer you the lowest interest rate possible. Alternatively, if you are willing to pay a slightly higher fee the closing costs will be less.
The next consideration when refinancing is will it save you money? This question needs to be analyzed on the monthly savings, as well as overall savings. At first glance a monthly savings might be adequate, but not if the costs outweigh the benefits. A good lender will give you the breakdown of your recoup period to help determine if the monthly reduction is worth it. Besides your monthly savings, the long-term savings can be astronomical. This is because a lower interest rate means the amount of interest you pay overtime will be significantly reduced. This can save you thousands of dollars, not just a couple of thousand, but thousands. Lastly, a lower interest rate allows you to build equity in your home more quickly. At times, you might be able to refinance into a program than doesn’t require monthly mortgage insurance. This can also benefit you by further reducing your monthly payment.

There are various types of refinance options, everything ranging from rate/term to cash-out. Some folks refinance their term from a 30 year to a 15 year, some folks convert their adjustable rate mortgage to a fixed rate mortgage, and other people are refinancing to extract equity to pay off high-interest debt. Everyone has their own set of reasons for refinancing and if you think it is something you should consider, sit down with your lender and review the options. You might be surprised at what options are available.

Vickie Perry (#AK195996 /
#AK167729) is Branch Manager of
Residential Mortgage, LLC, in Juneau.

She can be reached at (907) 789-2329. Visit her website at