Andrews: Whether to refinance requires examining costs versus savings

I've been asked several times recently whether or not someone should refinance their home or investment property, given that interest rates are at historical lows. My answer is consistently the same: It depends on how big the benefits are from lower interest payments compared to the cost of the refinancing transaction. If the savings from lower rates pay back the financing costs in a reasonable amount of time, it may well be worth the time, energy and expense to refinance the loan. The two most common issues impacting such an analysis are the holding period and the true level of cost. The holding period refers to how long you intend to own the property and when you intend to pay off the underlying debt. So, if it will take five years for the lower interest payments to offset the refinancing costs, but you plan to sell the property within three years, it would not make sense to refinance. The true cost refers to those transaction expenses in addition to loan points that you might not initially think about in your analysis, such as a new appraisal, updated title and other fees—and don't forget the value of your time to get the transaction completed. Taking all financing costs into account will necessarily extend the payback period and should affect your decision. Most lenders and mortgage brokers understand the cost-versus-benefit analysis and should be willing to help you through the decision-making process. If they are not, find someone who is willing to keep your interests ahead of theirs and make the correct decision.

(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Real Estate Services, and he can be reached at brian.andrews@acmla.com.)

This week's poll question: Have you refinanced a home or property loan since interest rates began hitting record lows?

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