This is traditionally “buying season” as we move through June and into the summer ahead of schools starting back up. But refinancing can lower your client’s monthly mortgage payment and reduce the total amount of interest that they will pay on their home depending on the situation. With interest rates “treading water,” it may seem like a no-brainer to refinance. But before you jump on the "refi" bandwagon to secure a new loan for your client’s home, Orion thinks that you should advise them on the pros and cons, as there are some situations when refinancing might not be worth it.

So, what's the biggest benefit of refinancing today? A lower interest rate compared to your client’s overall debt picture. With rates at these levels and expected to stay around here for months to come but with credit card debt in the 20 percent range, it's no wonder that some millions people continue to refinance their mortgage. You'll just have to help your client take into consideration how much it costs to refinance, and how long it will take to recoup the costs. If the savings outweigh the costs, scoring a lower interest rate is a great reason to refinance all of their debt.

Depending on your client’s financial situation, refinancing to adjust the length of their mortgage and in effect, their monthly payments, could offer significant benefits. Just like paying off credit card debt in one year versus five years, shortening the loan term means they will pay less total interest on the mortgage.

On the other end of the spectrum, if they're having trouble making payments and are looking for a way to reduce their monthly payments, refinancing could help with that, too. You could advise them to go from a 15-year mortgage, for example, to a30-year term and thereby lower the amount that needs to be paid per month.

The other big perk brokers explain is your client can lock in a fixed-rate loan for security purposes. Now is a great time to let go of the uncertainty of an ARM in favor of a loan with a fixed rate that will never change. However, like most things that seem too good to be true, there are some pitfalls. The biggest is that there are closing costs, which most view in their minds as the amount it costs to refinance their home. Closing costs can add up to 3 to 6 percent of the outstanding principal of your client’s loan, and include application fees, loan origination fees, and appraisal fees, among other things. The costs and penalties add up, but if you help your client calculate that their savings from refinancing will outweigh these closing costs, then they’re in the clear and you’ve added value.

Secondly, if they move in a few months, or even a year after refinancing, the costs of refinancing may be greater than their total savings. One rule of thumb is that if they're not going to recapture the closing costs within two years, it's not worth it to refinance. If their credit score is lower now than when they initially took out their mortgage, they may have to pay a higher interest rate, which may defeat the whole purpose of refinancing.

Lenders will also compare the amount of the loan request to the value of the home and if the loan-to-value (LTV) ratio does not fall within their lending guidelines, they may not be willing to make a loan or may offer your client a loan with less-favorable terms than they already have. So, before your client decides to take the plunge and refinance, it's important for a good broker to help them figure out if they'll truly be able to reap the benefits of refinancing.

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