There are all sorts of “recommendations” on lowering their monthly payment that homeowners will receive along their journey. Most of these will focus exclusively on how a lower payment must be better because it’s, well, lower. Others will promote how much you will save each month or suggest that some particular threshold of change should be your trigger (if you can lower your payment by $100 or $200, for example).
I believe that all of these recommendations are either misinformed or solely for the benefit of someone who wants your money.
The correct way to look at refinancing your mortgage to lower your payment should be based on a Needs Analysis. The core ideas behind this approach are:
- A lower payment isn’t better unless it helps you meet an essential budget objective
- A lower payment will likely increase your Lifetime Interest Cost
From these two ideas comes a framework for determining whether you, the homeowner, will benefit from refinancing to lower your payment:
If lowering your payment isn’t essential OR if the combined total of all interest and closing costs is increasing, it’s probably not worth investigating further.
But… there’s more to it than that.
Sometimes, you really need to lower your expenses. Period. And, if you’ve exhausted every other less-expensive means to meet your critical budget goals, refinancing may make sense.
Sometimes, it’s in service of another goal. For example, if you are looking to refinance to lower your payment so that you may commit to funding a college savings plan for your children, that may make bigger-picture sense than a pure needs-analysis might support.
Sometimes, you can refinance to eliminate or reduce mortgage insurance and that has the effect of lowering your payment and lifetime costs. It should be said, however, that it takes a thorough analysis of your circumstances to determine if you (rather than the lender) will benefit.
My hope is that the insights provided by this article helps you see the benefit of speaking with a mortgage professional – one who is more interested in your financial well-being than his or hers. Please contact me for a free mortgage review to learn whether your payment may be lowered intelligently.