Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

Avoid This Costly Refinancing Trap

August 04, 2016 at 12:00 AM

In late July, the 3.4% average rate for a 30-year mortgage was near the historic low set in 2013. That’s great news for so many homeowners who were unable to refinance back in 2013 because they didn’t have the 20% equity that most lenders require for the best refi deals. Fast-forward to today and home values are up an average of nearly 30% since early 2013. That means plenty of homeowners can now-finally-refinance at today’s great rates.

And even if you refinanced within the past five years you might want to take another look at refinancing (again), if 3.4% is at least one percentage point below your current rate.

But I want all refinancers to be very careful.

Rule 1: Refinance Only If you Intend to Stay in the House a Few Years. There is no such thing as a free refinance. You will either pay closing costs-which can be a few percentage points of your loan cost-or a higher interest rate. You can use an online refinancing calculator to estimate how long it will take for a refinance to pay for itself. Typically that’s at least a few years.

Rule 2: Don’t Extend your Mortgage Term. If your current mortgage is for 30 years and you’re 13 years into paying it off, I don’t want you taking on a new 30-year mortgage with the intention of using all 30 years to repay the loan. That would mean you’d be paying off the home—with interest!- for a total of 43 years.

I want you to look into a mortgage that gets you as close to a total payback of 30 years as possible. Many lenders won’t custom-tailor a mortgage term. In that instance, take out a new 30-year but have the lender immediately send you a schedule of what your extra monthly principal payments would need to be to have the loan paid off within your desired time frame. For example, if you have already made 13 years of payments, ask for an amortization schedule to have the loan paid off in 17 years.

Rule 3: Check Out the Amazing 15-Year Deal. As good as a 3.4% fixed rate for 30 years is, the 2.7% rate on a 15-year loan is well worth checking out. The rate is so low, that you may be able to refinance your remaining balance and end up with a payment that is not much different than what you were paying on your 30-year. The payoff is that you will save on interest payments. A 15-year mortgage can be a great for pre-retirees, as it will help you get the debt paid off before you retire. Another option to build in some breathing room is to opt for the 30-year but ask for an amortization schedule that shows how much you need to pay off the mortgage in 15 years. While your interest rate will be higher than with an actual 15-year loan, you have the option to not make those higher payments if your financial situation changes.

Tag Cloud

lower raterequired disclosurebuy down consider roth 401(k)death benefit 20 to 25 times annual incomebad decisionscar buying mistakes6 month waiting periodhigh FICO scoreMortgage Credit Availability Indexleave a legacyMust Have Documentsgraduation3 bucket approachteach importance of helping othersnon conventional routeovercome financial fearsAARPhealthy retirement blood pressurepay more than minimumsavings pleasureGift10% donate to charityRetirement Incomehome loan credit score below 740 insurancehome budget after tax coststretch out haircut appointmentsback door Roth IRAFederal PLUS loan2016 adjust withholdingHDHP'swomen live longerbad retirement planningConventional loan PMI8 month safety netsocial worksecure creditallowanceverify wellness screening and programsunexpected expenseplanrepay student loansresponsible with moneygay marriage ban end Florida death benefit needs for familyhigh down paymentSuze Orman's Money Warsfinancial fearspay credit debt ASAPchildren under 18Bankwomen long term caresecured cardretirement accountsmax employee matchRevocable Living TrustHeartthree year car loanget health insuranceBaby Boomersfinancial concernETF'sage appropriate goalscouple financesteensco-sign Financial Awareness Video Festivalpremiumdon't extend mortgage unsubsidized Stafford loannot gender specific Willno late fee overspend on dining outstudent loan repayment planstay positivepercentage men widowed 75-84Influentialsback-to-school budgetwrite new goalstudent740 credit scoreemotional stakesreal estate marketbudgetspring summer require chore in exchange for allowanceaffordabilityearn allowancepreexisting condition not coveredworkaholicdo not pay allowance for good behaviorhome ownershipmortgagedebt freemortgage disclosurerefinancecompare provider pricinglong-term care premiumsmarriage financial responsibilityTelepictureslet them have 50% controlFICO at least 720bill paying prioritiesAccuQuote.comcalculate dependents annual income needsdon't charge a pennydon't buy wantsinsurance mistakeEmergency Savingsadd teenpay down car loansocial securityprescription tiershop online guaranteed level term policytoo expensive schoolcollege studenteliminate credit card debtonly refinance if it paysshort term goal HDHP/HSAgift not loanlower mortgage interestcostly insurance mistakeFinancial AwarenessOne Wallet At A Timecredit uniondo you need life insuranceCredit Card Rate Increasetake actionLovebetter loan deals20 to 25 times annual incomemarriage inequality2015 financial roadmapoverspend on giftsphysical healthFinancial Educatorearn more on savingsincentives for health care wellness screeningkid borrow firsthealthy retirement weightLong Term Care premiumssave moneyAuto Savings closing costs 2% of loanFree Debt Eliminator3% debt transferred CNBClowest cost fund optionStudent Debtlower premiumswitch to roth 401(k)overspend on nights outincrease retirement savingsnear historic lowsemergency fund small changes 4 Must Have Documents LTC40% toward financial goalemergency fund savingswives should be involved in retirementclosing disclosurefocus on new truth dental savings planyours, mine & oursHow To Build Creditcommunity collegeAdequate Auto and Home Insurancelow credit scorefinancing car strained relationshiphome buying mistakesSave Us Moneyidentity thefthigher monthly paymentprotect loved ones allowance taskwomen longer life spanCPI-Wsave sidelinedpay off debt3 savings buckets automatic withdraw to savings keep a schedulecontribute household expenses Invest for savings growthprofessional advisormaintain standard of livingHigh Credit Scoreface your financial fearcan you afford itsocial security never insolventpurely financial standpointanticipated salarybetter loan ratesat worst still pay 75% benefitwould you decline a bonusPost-Divorcereplace permanent life insurance with termARMsuitableAmy Lacyetletter to suzeFinancial Cliffdon't ignore open enrollmentretirment savingsconfident of solutionmultiple lenderszero rate transfer dealsclosing feesPrime Rate IncreaseGiftscontribution burn outspeak new goal2016 adjust estimated taxbe true to yourselfpeace of mindapproved medical 100% tax-freeUniversity of Floridapercentage of women widowed 75-8415 year mortgageAshley SpringerSelfishlife insurance name trust as beneficiaryterm life insurancecar loanpublic service career student loan repayment social security not going brokeproperty taxidentity fraudmax employer matched 401(k) contributionshorter payback perioddear suzefinancial aidSuze Ormanvalue moneyHoliday Shoppinghigh deductible health care planincreased auto insurance premiumCD'senjoy saving children's booktaxesraise your deductible!00% tuition paidFinancial Adviceraising mortgage rates Bill and PennySuze is my biggest mentorCollege of Veterinary Medicinecomparison shoppingSwap Older Annuities or Life Insurance is it true? 20% equityAARP Social security calculatorFinancialno interestreal estate mistakescut monthly cellular bill3 step financial road mapCiti Simplicity Card SelectQuote.comtelevision hostPBS SpecialForbes Top 10mortgage brokerFinal Goodbyecost of capitalization calculatorteens and moneyget over life insurance phobiaverify retirement plan with HR or plan sponsorexercise reguarlyno tax on withdrawlsnot enough life insurance50 over 50low mileage discountcreate new truthbe good examplecredit utilization rate401Klearn good financial choicesage appropriate choregift up to 14,000home buying seasondental insurance Wall Streetprovider of financial supportPhyllis Shelton expert long-term careVital Documentsfocus on needsadult childrenno fee transferjanuary billspush yourself to save more for retirementprotect dependent Forbesis it necessaryCory Bookerstudent loan repaymentfiduciaryhome buying budgetChanging Livescompare monthly expensesfinancial argumentsbuying a carCommunication Skills Suze approvedinterest capitalizationSuze Orman Scholarshippay down student loan debtmake saving a pleasurecredit managementdebtSuze Orman spouse Kathy Travisno private loanbalance transfer 8 Ruleslower overall drug costbest interest of investoritemized deductioniffy incomeVeterinary Schoolstudent loan debtwaive home inspection bidget the most out of social security under 18 financial giftresponsibleWarner Bros Television Groupnew carEasy Life Insurance breakdown projected monthly housing costUrbana-ChampaignGraceopen enrollment review Goodbyereduce withholding10 year repayment plan Satisfyinglow down paymentdepreciating asset higher insurance deductiblebig results long term goalSpendingIRA contribution gifted moneypublic service loan forgiveness programpaying for collegeCivil RightsSandy Hook Promiselow-cost index mutual fundreduce interest rateUS Tax CodeInterestterm insuranceuniversal college accessdon't use allowance as bribesuccessdon't spend no sneaking in feesholiday spendinghome related tax break bonus point cost offset by savingsultimate compounding giftno apologyLegal Guardianalternative FICO scoresetup automatic savings withdrawone annual feeLong Term Care shoppingstandard deduction life insurancecredit report401(k) Contributionsonly offered while employed charges on credit cardbetter termsno life insurance financially irresponsibleHDHP's are not badMost Influential Celebrities Listhigh credit score discountNew american Dream dangerous retirement planMinor Children Exhibitioninterest on student loansschedule vacationpositivedebit cardInfluential Celebrityhigh premiumsorigination feeshealthy teethstore credit cardscredit cardThe Suze Orman Showrising home pricesJose RodriguezLTCi ASAPsavingsCombo Insurance Productsdon't blow tax refunddangerous money seasonmental healthbuying car 2016same-sex marriageis it kind?healthy aging monthly dental insurance premiumMoney-Savingadjust allocations dental discount planaccelerate dental workDurable Power of Attorney for Health Carequick closinghealthy youHSA tax savingsFinancial Power of Attorneyeight month living expense no waiting periodStock Investmentsreferrals don't defer interest paymentsTeachlive below your meansget credit cardGay Couplespay interest while in schoolno negativityfull retirement agealways use all paid time offpay high rate off firstCommencementFixed Rate Mortgagerefunddon't derail retirement savings20 year level term kids schedule paymentsfile taxes quicklycnbc alarm clockSandy Hook Elementary Schooltax ID theftSchool of Social WorkFHA loan feesfile asap15-year refinance dealdoctor no longer in networkvalentines dayhome insurancecommitsummer job match income Student Loanworst financial mistakeMoneyRichWashington30 year mortgage one credit card19 years cash flow problemFederal Reservemobile approth iracommunity bankMass MutualFICO credit score credit card mortgagefinancial goal phraseannual cost of living adjustmentLifestylebest interest rateslong term caretraditional vs roth 401(k)Federal Stafford loanjuggle multiple financial goalstax refund frauddream school2015 record year car salesEmployer Matched ContributionFiscal Responsibilityengaged in financesderailed planpowerfulrolloverAmericans don't use all paid vacation timeconfidentmonthly benefit 2017 Taxesadvice for college graduatesmortgage interest tax deductionInflation Benefitprotect your family8 month emergency fundspecial saving accountHolidaycut monthly cable billMoney Marketstandard rateForeclosureritual scheduleborrow each year, capitalization is going to pile up affordable premiumLTC shoppingknow before you oweretain separate credit cardsmax benefit coveredCredit scoreFRAloan necessitybuy home you can affordpaid in fullschool FICO Scoreraise deductiblesemployer offered life insuranceavoid burn outbest loan deal grandchild summer job IRA contributionteach your child good money habitsignore 6 month grace period increase emergency savingsreduce monthly paymentbe kind to yourselffederal student loan deferment Roth 401(k)money vowscollege graduateBeautylousy investmentstaycationraise insurance deductibleautomatic paymentrent vs buyloan no longer than 36monthsLong Term Care Insurance Financial Systemfraudulent returnautomate student loan paymentsdon't cover cosmetic dentistryCredit Card Interest RateFundssame sex marriage band end FloridaPay Off Debt Before Retirementhousing marketmanage student loansstudent loan repayment estimatornegotiate points with bank or sellermeet monthly no splurge no private loansRevocable TrustFinancial Solutions For YouPersonal Financelong-term care grandparent IRA contribution permanent life insuranceretirement planretirementBankruptcyloan big picture Overspendingprotect and provide for minor child Student Debt CrisisNew York Lifeborrowing plan 20% down paymenthighest possible benefitYoung Adult Retirement Savingsloan is giftGay Rightsfamily save at least $100 monthlybuy homeno retirement funds for down paymentAlarm ClockCOLAPrime Rate Rise 2015High FICO Score = Better Ratebecome member insurance yearly reviewraising interest ratesfinancial independenceUniversity of Illinoisgift grandchild IRA contributionincrease retirement contribution ratecar leasingis it necessary?Federal Funds RateDeath Benefitemployer funding HSAtitle insuranceMotherStaffords this year have a fixed 6.8% interest rateswitch to spouse coveragecostly legal don't do five year car loandoctors in networkhealthy gumsmoney-aware childpaid vacationHDHP Financial Gift CliffMarlo ThomasHDHP's are good for youNewtownARM Cautionloved ones dependent on incomeEric Dodge commissions20% down payment avoid feesinitial tax break Suze changed my lifeheartachepay 100% cashHoliday Seasonfour steps to retirement savings lower interest ratewomen outlive menescrowpresident Obama

View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel