Are you thinking about refinancing your house? You’re not alone. Lots of people are posting on Reddit about this lately. Let’s talk about some important things you need to know before you make this big decision.

What Does Refinancing Really Mean?

When you refinance, you’re getting a new loan to replace your old one. Most people do this to get a lower payment or better terms. But here’s the thing – it’s not always that simple.

Mortgage rates hit their peak in October 2023 at close to 8%. Since then, they’ve been improving. But nobody really knows what will happen next. Loan officers have been wrong for three years about what the Fed will do and what mortgage rates will do.

Points vs. No Points: The Big Decision

This is where things get tricky. Let me break it down for you.

What are points? Points are extra money you pay upfront to get a lower interest rate.

Here’s what most loan officers won’t tell you: They get paid when you close a loan. Right now, everyone’s saying “don’t pay points.” But why?

The speaker talks about a client who was a financial advisor. This client decided to pay points, and here’s what he said:

“I’m just going to prevent myself from needing to refinance again.”

That’s smart thinking. He didn’t want to go through this whole process again in a few years.

Sometimes paying points gets you a much better rate than usual. When that happens, you might not need to refinance again even if rates keep dropping.

Think about it this way:

• If you don’t pay points, you get a higher rate
• When rates drop more, you’ll want to refinance again
• That means paying all those fees again (title, processing, underwriting)
• Sometimes it’s smarter to pay points now and be done with it

The Math Behind Points

Here’s the key question: Have the lender show you the rate with points and without points. Sometimes paying that extra discount point will save you way more money than you’d expect.

The Truth About “Free” Refinancing

Here’s something that bugs me. Lenders love to advertise “free refinancing.” But let me ask you something – do you know any business that works for free?

I don’t either.

There’s no such thing as a truly free refinance. Someone always pays. Usually, it’s you through a higher interest rate.

Here’s how it works:

• They don’t charge you closing costs upfront
• Instead, they give you a higher interest rate
• This higher rate pays for those “free” costs over time
• You end up paying more in the long run

Who Really Wins with Free Refinancing?

The lender wins twice:

1. They closed your loan now
2. When rates drop more, you’ll refinance again (and they get paid again)

It’s like a revolving door. They keep you coming back.

ARM Loans: A Smart Option Right Now

Adjustable Rate Mortgages (ARMs) have some really interesting interest rates right now. Don’t let the name scare you.

If you’re thinking about refinancing, ARMs are worth looking at. They usually come with discount points, so plan for holding the house for the long term.

Good ARM options:

• 7-year ARM for longer-term holds
• FHA 5-year ARM rates are “pretty wicked” right now
• VA 5-year ARM rates are also great

The speaker has separate videos about both FHA and VA ARMs if you want to learn more.

The Hidden Money-Saver: Your Insurance

Here’s something that might save you more money than getting a lower rate – your homeowner’s insurance.

The speaker has a client right now who can’t close on a home equity line of credit. Why? Their insurance company changed their policy to “real cost replacement” for the roof because the roof is over a certain number of years old.

When you refinance, it’s the perfect time to shop for insurance because:

• Your old escrow account closes
• A new one opens
• You’re not out-of-pocket for the switch
• If your policy is about to renew during the refinance, this is really the time to check it out

Easy Ways to Save on Insurance

Look at your coverage: Make sure things are covered properly. Watch out for companies that force higher deductibles on things like wind and hail just to make the policy look cheaper.

Change your deductible: This is a good place to start. Going from $1,000 to $5,000 or even $10,000 can save you noticeable money each year. But only do this if your finances can handle paying that much if something bad happens.

Why this might save more than a lower rate: The difference in your monthly payment between paying points and not paying points might be less than what you save with the right insurance policy for your situation.

Don’t bundle everything: The speaker learned this from personal experience. He saved more money by splitting his insurance:

• Auto insurance with a company that only focuses on cars
• Homeowners with a different company
• Rental properties with a third company altogether (which also lets LLCs be insured on the properties)

When he tried bundling, his auto insurance would have gone up even though homeowners went down. It was just “smoke and mirrors.”

Avoid small claims: Only file claims for really bad emergencies. Don’t file claims for small things you could pay for yourself.

Red Flags When Shopping for Lenders

Watch out for these warning signs:

• They push you hard toward “no points” without showing you the numbers
• They promise things that sound too good to be true
• They won’t show you different options
• They rush you to close quickly

Good lenders might actually tell you NOT to refinance. The speaker saw someone post on Reddit about this. They said “this loan officer is telling me to wait and not to refinance. What should I do?”

The speaker’s answer? “Well, it probably means they’re trustworthy because they’re not trying to convince you to make a bad decision.”

If someone gets paid when you close a loan but tells you to wait, that might be someone to keep on speed dial. They’re being honest even when it costs them money.

Making the Right Choice for You

This isn’t about emotions. It’s just math. Here’s what to ask yourself:

• How long will I stay in this house?
• Can I afford to pay points upfront?
• What’s my current rate compared to what I can get?
• How much will I really save each month?
• What are the total costs?

Remember: Historical mortgage rates aren’t usually in the 3% range. That was just a few special years. Today’s rates aren’t crazy high when you look at the big picture.

The Bottom Line

Refinancing can save you money, but you need to be smart about it. Don’t just look at the interest rate. Look at:

• Points vs. no points
• Total costs
• How long you’ll stay in the house
• Insurance savings
• The lender’s reputation

Take your time. Do the math. And remember – if a deal sounds too good to be true, it probably is.

The best refinance is the one that actually saves you money over time, not just the one with the lowest advertised rate.