This is one of the most common questions that prospective borrowers ask. Unfortunately, there is no blanket answer to this question. The answer depends upon borrowers’ circumstances, objectives, market conditions and the settlement and closing costs involved. All of these factors must be considered to make a determination if now is the time.
To keep matters simple here is are some simple considerations.
- How long do you intend to keep the loan? Rarely do people stay in one home for 30 years. It is rarer for people to keep the SAME loan the entire term. Rates drop, people withdraw equity and other factors reduce the probability that borrowers will retain a loan for the entire term.Honestly assess how long you plan to keep the home and make sure that you can recoup the cost of refinancing OR look for programs that provide a Title Fee Credit (TFC). By using a Title Fee Credit, breaking even on settlement costs is not an issue, so how long you plan to keep the loan is irrelevant.
- What is the probability that rates will fall further? No one has a crystal ball that can determine where rates will be in the future. Timing the market is difficult for even the most seasoned professionals. We encourage all prospective streamline borrowers to speak with an CBC National Bank Mortgage Specialist and attempt to identify other benefits in addition to just the rate. Also borrowers concerned about future rate drops may want to avoid adding fees to their loan balances, so they can refinance in the future with minimal costs to recoup if rates fall further.
- Are the costs justifiable in comparison to the savings? There is one simple answer. If you can recoup the costs within the time that you plan to keep the loan, then the transaction is cost-justifiable. This alone should not be the determining factor. Consider the other transaction benefits as well.
- Does the transaction offer any other benefits? The streamline rate reduction may increase the amount of money that is applied to your principal loan balance each month. Participating in a rate reduction may provide another immediate benefit. The monthly savings after the rate reduction may also free up cash each month to eliminate other bills or apply to savings. Consider all factors.
Fortunately, deciding to participate in a streamline rate reduction is an easily quantifiable decision. There are programs for people looking for long-term solutions and programs for people in search of more conservative short-term options that require little or no upfront costs.