You want to refinance your mortgage, but your spouse thinks that's a bad idea. Or maybe your spouse says yea, and you're the one who says nay. How can you reach an agreement on this important financial decision?
Start by defining your goals, suggests Ken Turkington, president of First Commerce Financial, a mortgage company in Wixom, Mich.
"Frequently, spouses have different opinions," Turkington says. "Often one spouse may be more interested in payment relief, and the other spouse may be more interested in reducing the balance or shortening the term."
Either way, it's important to talk about the options.
"If the conversation is held jointly, the transaction goes faster and smoother," Turkington says, adding that the result should be "less anxiety and more clarity" for both partners.
Here are four tips that can help you and your spouse find a common ground:
1. Focus on facts. Focus on facts, not emotions, says Joe Metzler, a mortgage specialist at Mortgages Unlimited in St. Paul, Minn. Crunch the numbers, look at the short-term and long-term implications of refinancing, and learn about the costs, time frame and break-even point. One good way to get a solid estimate of the cost of refinancing is to review your existing loan's Closing Disclosure (or HUD-1 Settlement Statement).
How to get the facts? Use a Should I refinance? Calculator. Plugging in your existing loan numbers and the mortgage rate and term you can expect to get today can reveal whether you'll save money, build equity more quickly or only improve monthly cash flow. You can quickly learn whether or not it makes sense to refinance.
"The facts usually prevail, and it becomes very apparent what to do," Metzler says. "The objections of one spouse, if not going away completely, are significantly dampened so the right decision is made."
Don't forget to also consider that a refinance may allow you to cancel private mortgage insurance, since home values have risen appreciably over the last few years. If you're in an FHA-backed mortgage, refinancing to a conventional loan is the only way to remove this monthly cost.
2. Consult a mortgage pro. If you're unsure about your goals or you and your spouse don't agree, set up an in-person meeting with a professional loan officer who can help you sort out what you want to achieve, Turkington says. Use the lender as a sounding board and then continue the discussion later by yourselves.
"Schedule a time to have the discussion," he advises. "Make a point of making an appointment to discuss it, whether it's five minutes or 15 minutes." Ask about the pros and cons of different approaches to achieve your refinancing goals in your time horizon.
3. Resolve bigger issues. How long you plan to keep your home and the new loan is an important consideration when refinancing. If you expect to move or refinance again in the near future, you might make a different decision than if you're planning to stay put for a while.
For some, it comes down to costs. It may not make sense to refinance if you have to pay costs you'll need to recover if your time frame is short. Learning how best to pay refinance closing costs is key; it might be possible to refinance with no out-of-pocket costs and still realize significant savings, even with a short time horizon.
Metzler recalls one couple who couldn't agree on this crucial point.
"She was completely adamant that refinancing made no sense because they were going to move out of that house in four to five years, tops. He said they were going to live there the full 15 years," Metzler says. "I think they had some other issues going on."
If you and your spouse are in such major conflict, try to resolve the other issues before you decide whether to refinance your mortgage.
4. Improve your credit. Spouses often have different financial habits. It's not uncommon for one to have good credit while the other has a low credit score.
If your credit is impaired credit, this means you'll be offered higher mortgage rates and have to pay higher costs when you secure a new loan. A higher rate or costs might mean refinancing won't make sense for you.
Turkington suggests a solution: remove the poor-credit spouse from the loan application. If that's you, your ownership of the home won't change, but you'll have to sign documents acknowledging the loan terms, the payments won't be reported to the credit bureaus to help you improve your credit score, and your income won't be counted toward the loan qualifying guidelines.
This approach has a definite benefit, Turkington says: "The good part would be to get a better interest rate or lower fees."
It's also possible -- even likely -- that if you or your partner's credit scores weren't great when you bought your home that they may have improved since then, especially if you've made all your payments on time. If that's the case, and given what's happened to mortgage rates in recent years, you may be eligible for a lower mortgage rate than you think.
Altogether, these tips can help you and your spouse reach an agreement about whether to refinance or keep the mortgage you already have.
This article was revised and updated by Keith Gumbinger.
