SPECIAL REPORT: Deciding when to refinance your mortgage

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Lansing, Mich (WILX) -- Deciding when to refinance your mortgage can be overwhelming in the best of times, but getting the right deal can net homeowners thousands of dollars in savings.

It’s a decision that did not come easy for Allie Siarto and her husband. A few years after they bought their first home in Mid-Michigan, Siarto says reality really hit when they had their two daughters.

“We have to think about paying for college and we have all these other expenses that we have for them,” Siarto said.

Looking at how to make the most of every dollar, Allie says refinancing their 30-year mortgage seemed like the best option thanks to low interest rates. So the couple switched to a 15-year mortgage, something that ended up raising their monthly payments but would ultimately lead to more savings.

“We would love to just not have to pay a mortgage anymore, so we figured pay a little more now so more of that goes toward principle and then the house will be paid off a lot sooner,” Siarto explained.

Helping homeowners secure loans like that are Mortgage Bankers, like Joe Joseph.
His advice: if you’re paying higher-than-average interest, refinancing almost always makes sense.

“We're still in the low 4’s which is historic lows,” said Joseph, a Senior VP Mortgage Banker at Dart Bank. “That’s a situation that can save people tangible true money out of their pocket every month.”

Joseph says the other key to getting the best deal is reducing the number of years on the mortgage, since the faster a homeowner pays off their loan the more they save.

“You’re paying much less interest over the loan saving at times hundreds of thousands of dollars,” he added.

But in order to get the best interest rate, homeowners need a good credit score, and Joseph says it should be at least a 740.

“As you go below that in 20 point increments that can have an effect on your interest rate depending on the exact situation,” he said.

Refinancing comes with options to pull in other bills, like car and credit card payments. While that can work in some cases, Certified Financial Planners like Ted Feight say it can also leave homeowners overextended and paying off their debt a lot longer than they thought.

“A lot of people think that their home is their bank, they can take money out and do whatever they want and they can, but will they ever pay their house off?” Feight added.

Feight says many people are so focused on their monthly payment they forget refinancing isn’t free you still have to pay closing costs similar to buying a home.

“It could make the overall amount of money you're going to pay on that home much higher than you might imagine,” he noted.

To figure out when you’ll start to see savings, you first have to know the cost or refinancing and how much you will save on your monthly payments. So if it costs $3,000 to refinance but will save you $150 on your monthly payments, you would divide the cost by the savings and see in 20 months you’d be at breakeven.

“When you’re trying to decide if you want to refinance, take a look at your budget and see how much you need to refinance, how much is it going to affect it, what are you going to do with the extra money that you're going to have at that point,” Feight said.

It’s a decision Siarto knows doesn’t come easy, but is letting her family focus on what’s most important.

“It’s hard to make that jump but we figured over time it was well worth it. It was worth the effort, it was worth the money because we would save so much in the end and we would pay off our house faster.”