It may come as a surprise that roughly 40 percent of current industry loan volume is coming from refinances. Orion’s brokers know that for some, refinancing can lower their monthly mortgage payment and reduce the total amount of interest that your client will pay on their home. Interest rates are no longer at an all-time low, but there are borrowers out there with 7.5 percent mortgage rates, or above, who could benefit. But think about the rate that credit cards charge their customers! It may seem like a no-brainer to refinance. But before your client jumps on the "refi" bandwagon to secure a new loan for your home, you should teach them the pros and cons, as there are some situations when refinancing might not be worth it.

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What's thebiggest benefit of refinancing today? A lower interest rate for your client’s overall debt situation. Borrowers may very well have a low rate on their home loan, probably less than 4 or 5 percent. You'll just have to help them takeinto consideration how much it costs to refinance, and how long it will take to recoup the costs. If the savings outweigh the costs, refinancing from 4 percentto 7 percent won’t save the homeowner any money. Scoring a lower interest rate is a great reason to refinance, but for a higher rate?

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Depending on your client’s financial situation, refinancing to adjust the length of their mortgage and in effect, monthly payments, could offer significant benefits if there finance pulls “cash out” out of a home that has equity and the money is used to pay off 20 or 30 percent credit cards. Just like paying off credit card debt in one year versus five years, shortening the loan term means they will payless total interest on the mortgage.

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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 help them go from a 15-year mortgage, for example, to a 30-yearterm and thereby lower the amount that needs to be paid per month. Some borrowers will move from an adjustable-rate mortgage to the stability of a fixed-rate loan.

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Brokers know, however, like most things that seem too good to be true, there are some pitfalls. The biggest is your client will have to pay closing costs, which most view in their minds as the amount it costs to refinance a home. According to the Federal Reserve, closing costs can add up to 3 to 6 percent of the outstanding principal of a loan, and include application fees, loan origination fees, and appraisal fees, among other things. The costs add up, but if you calculate that their savings from refinancing will outweigh these closing costs, then you've added value. Just make sure to do your due diligence and help them consider their options wisely.

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Secondly, ifyour client will move in a few months, or even a year after refinancing, thecosts of refinancing may be greater than the 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.

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The final consideration is to make sure that the borrower chooses a broker ally for doing the loan. 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. Brokers 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 lending guidelines, question the viability of the loan, or spend the time to restructure it. So, help your client decide to take the plunge and refinance, as it's important to figure out if they'll truly be able to reap the benefits of refinancing.