Should you refinance? How to do the math on your Maryland mortgage

Name the goal before you look at an offer

Different goals produce different comparisons. Lowering the monthly payment, shortening the term to pay less interest over time, moving from an adjustable rate to a fixed one, removing mortgage insurance when you have enough equity, or taking cash out to pay for something else each change the cost and the risk in different ways.

Write the goal in a sentence with a number in it, and write what would make the offer fail it: too much upfront cost, a balance that goes up, a payoff date that moves ten years out, or a payment that only works if a temporary assumption holds.

• What should the new loan fix that the current one does not?
• How long do I realistically expect to keep this house and this loan?
• What am I giving up from the current loan, such as a low fixed rate or years already paid?

Compare the whole loan, not the monthly payment

A payment can fall because the rate is lower, because the term is longer, or because costs were added to the balance. Stretching twenty remaining years back out to thirty lowers the payment while adding years of interest. The CFPB’s refinance handout asks the questions that expose this: how much lower is the payment, what does it cost, and how long until the savings cover the cost.

Put the current loan and the proposed loan side by side, using the same categories: balance, remaining term, rate and whether it can change, principal and interest, escrow, costs paid in cash, costs financed, and total interest over the life of each.

Every closing cost, and how each one is paid

A refinance carries lender fees, an appraisal, title and settlement charges, recording, and prepaid interest, taxes, and insurance; the CFPB lists the kinds of costs that come with any mortgage. In Maryland, ask specifically whether recordation tax applies to your refinance and how the title company handles it.

A cost paid in cash and a cost rolled into the loan are both real. Financing the costs lowers what you bring to closing but raises the balance you pay interest on. The Loan Estimate shows both, and it shows which services you can shop for.

• Which costs are cash, which are financed, and which are covered by a credit?
• Which services may I shop for myself?
• Will my current escrow balance be refunded, and how big is the new escrow deposit?
• Is there a prepayment penalty on either loan?

What “no-cost” and lender credits actually mean

The CFPB explains how closing costs are covered in a “no-cost” refinance: through a lender credit tied to a higher interest rate, by adding costs to your loan balance, or both. Discount points work the other way: you pay more at closing for a lower rate.

Ask which mechanism is being used and compare the versions on the same loan amount and term. A credit is worth more if you will keep the loan only a few years; points are worth more if you will keep it a long time. Neither is free, and the right answer depends on your timeline, not on the label.

Break-even, and the special case of cash-out

Total cost divided by monthly saving equals your break-even month. If costs are $6,000 and the payment falls by $150, you break even in month 40; a move or another refinance before then means you paid more than you saved. This simple math ignores taxes and what else the money could have done, so treat it as a floor, not the whole answer.

A cash-out refinance replaces your loan with a larger one and hands you the difference. The rate and costs apply to the whole new balance, not just the cash, and you are converting equity into debt secured by your home. The home equity guide on this site compares cash-out with a home equity loan and a HELOC, which leave your first mortgage alone.

Compare the written terms before deciding

Do not assume you can refinance again later, that home values will keep rising, or that the terms discussed on the phone are the terms you will sign. Ask your loan officer for the Loan Estimate and read it against your current statement; when you are ready, the application, verification, disclosures, and closing happen in the lender’s secure portal.

In Maryland, that conversation is what Paola does at New Priority Lending Corp. This page cannot tell you whether a refinance is right for you; it can make sure you ask the questions that decide it.

• State the goal and your likely years in the loan.
• Compare balance, term, rate features, payment categories, and total cost.
• Separate cash costs, financed costs, points, and credits.
• Compute the break-even month and compare it with your plans.
• Take tax questions to a tax professional.