How do you calculate whether a refinance is actually worth it?

Hi, this is Jason Skelton with Pacific National Lending.

Welcome to another Q&A session where I answer mortgage questions from you all on the internet.

Today's question is:

"How do you calculate whether a refinance is actually worth it?"

Summary:

Jason explains that the refinance analysis can become extensive because it accounts for both short-term upfront cost and long-term cost, then compares multiple structures against each other. Using debt consolidation as an example, he outlines what refinancing the first mortgage would cost and what it would save, then sets that against the alternative of a home equity line of credit or a second mortgage and the short- and long-term cost of each. A second major variable is the borrower's intention for the money. If the funds are only needed for roughly six months — because a bonus, an inheritance, or another source is coming — that shorter horizon changes how the loan should be structured entirely.

Answer:

That can get pretty extensive, because we look at short-term cost, you know, upfront, and long-term costs. And we try to compare different options. So let's say you're wanting to do debt consolidation. We'll look at, okay, here's what it's going to cost if we refinance your first loan, and here's what it'll save you. And we can compare that to: what if we did a home equity line of credit or a second mortgage? And what is that going to cost you, short-term and long-term? The other thing that comes into play, like we said before, is what your intentions are. If this is money you only need to borrow for six months, because you know you're getting a bonus at work or something like that, or an inheritance or something that's coming and you aren't going to need the money long term, then that'll change how we structure the loan for you as well.