When Does it Make Sense to Refinance Your Mortgage in San Diego?

San Diego RefinanceAs a San Diego Mortgage Broker who works with all types of mortgages in San Diego and throughout California, I am often asked, “Does it make sense for me to refinance my home loan?” or “How much does my interest rate need to decrease to make it worthwhile to refinance?”  While these questions really depend on each individual’s home loan and their circumstances, I would like to discuss my viewpoints as a San Diego Mortgage Broker and how some past standards don’t hold true any longer.

Interest Rate Savings – San Diego Refinance

There is an old standard in the financial realm that homeowners who are looking to refinance in San Diego often repeat to me.  It states, that in order for a mortgage refinance to make sense the client needs to save at least 1% on their interest rate.  While this was true years ago when the average mortgage in San Diego was $150,000 -$200,000, it is no longer the case now that the average mortgage in San Diego is near $400,000.

Here is an example.  If a homeowner’s San Diego mortgage is $150,000 and they saved a half percent on their interest rate by refinancing, they would only save about $44 per month.  In most cases this refinance would not make sense. Instead, if the homeowner has a $400,000 mortgage in San Diego and can lower their interest rate from 4.5% to 4.0% on a 30 year fixed loan, that would save them $117 per month or $1,404 per year.  This example shows that it makes sense to refinance in San Diego if you can lower your mortgage interest rate by as little as a half percent.

Do I Save Enough on my San Diego Refi to Make the Closing Costs Worthwhile?

When you refinance in San Diego there is another factor to take into account.  How much are you going to have to pay in closing costs to refinance your San Diego mortgage?  A good rule of thumb I use in my practice as a San Diego Mortgage Broker is that you should be able to recover the cost of the refinance with the monthly savings you obtain within the first 3 – 4 years.

In the above example, the estimated closing costs for a$400,000 refinance in San Diego would be approximately $3,000.  Since the yearly savings from the refinance is $1,404 it would only take 2.14 years to recover the cost of the refinance.  This is a great example of a refinance in San Diego that would make perfect sense even though the savings is only a half percent.

No Cost Refinances in San Diego

One other option I make available to my clients as a San Diego Mortgage Broker is a no closing cost loan.  In this scenario, I help clients refinance their homes in San Diego and I pay all the closing costs as the mortgage broker.  There is a trade off here.  Usually, the interest rate is about .25% – .375% higher than if the client were to pay the closing costs.  There are many situations where this makes more sense than paying the full closing costs.

For example, if a client just refinanced in San Diego last year and paid the full closing costs, it might not make sense for them to pay them again in order for them to save a half percent in rate.  On the other hand, if I am able to cover all the closing costs and still save them a half percent, then it becomes a very easy decision to move forward with the refinance.  They are not saving quite as much as they could with the full costs and lower rate, but they are still saving a significant amount and not having to pay any closing costs.

If you would like to discuss your situation with a San Diego Mortgage Broker and see if your refinance falls into one of these categories, please feel free to contact me at 619-312-0612 or request a free rate quote HERE.  I would be happy to review your San Diego refinance with you.

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