Refinancing a mortgage in Georgia

Refinancing replaces your current mortgage with a new one. Done for the right reason, it can save real money. Done for the wrong reason, it can cost more than it saves. The difference is the math — and this guide walks through it.

By Bill Bulloch — former Georgia mortgage professional

Why homeowners refinance

• Lower the interest rate. The most common reason. A lower rate usually means a lower monthly payment and less total interest.
• Shorten the term. Moving from a 30-year to a 15-year loan usually raises the monthly payment but can save a large amount of interest over time.
• Switch loan types. Moving from an adjustable-rate mortgage to a fixed rate removes the risk of future payment increases; moving from FHA to conventional can remove mortgage insurance once you have enough equity.
• Take cash out. A cash-out refinance borrows more than you owe and pays you the difference. It can fund renovations or consolidate debt, but it increases your loan balance and your risk — treat it as borrowing, not income.

What refinancing costs

Refinancing is not free. Expect closing costs that can include an origination fee, appraisal, title work, and prepaid taxes and insurance. In Georgia, an attorney handles the closing, and attorney fees are part of the cost picture. Some lenders advertise "no-cost" refinances — that usually means the costs are rolled into the loan balance or the rate, not that they disappear. Ask for a Loan Estimate from each lender and compare the same items line by line.

The break-even test

The simplest way to judge a refinance is the break-even point: how long it takes for the monthly savings to repay the closing costs.

Break-even (months) = closing costs ÷ monthly savings.

Illustrative example only: if closing costs are $3,000 and the new loan saves $100 a month, the break-even point is 30 months. If you expect to stay in the home longer than 30 months, the refinance starts paying for itself after that point. If you might move or refinance again sooner, it may not be worth it. Run the numbers with your own figures, and remember that a lower payment from extending the term can cost more in total interest even while the monthly payment falls — compare total cost, not just the monthly figure.

When refinancing may not make sense

• You plan to move within the break-even period.
• The rate improvement is small and the closing costs are large.
• You would restart a 30-year term late in your current loan, adding years of interest.
• Your credit or home value has changed in a way that makes the new terms worse than the old ones.
• You are borrowing cash out for spending rather than for something that builds value or reduces higher-cost debt — and you have not weighed the added risk.

Questions to ask any lender

• What is the total of all closing costs, and which are rolled into the loan?
• What is the rate, and is it locked? For how long, and what does an extension cost?
• What is the total interest over the life of the new loan, compared with the remaining interest on my current loan?
• Will mortgage insurance be required, and when can it be removed?
• Is there a prepayment penalty on my current loan or the new one?