Refinance My Mortgage – What Things Should I Consider?

2007-03-08 10:33:40

( Financial )



With the increasing popularity of home equity loans, you may be asking yourself the question, should I refinance my mortgage.

By arranging for a mortgage refinance, you can save money by paying lower interest rates, you can access your home equity by borrowing more money, and you can restructure your debts. Here are basic things you should consider.

Interest Rates to Refinance My Mortgage

Refinancing your mortgage becomes attractive when prevailing interest rates on mortgage refinance are lower than on your existing mortgage. If your mortgage rate is at least 1 percent higher than current rates, mortgage refinance may lower your monthly payments and save you thousands of dollars in interest. You must consider interest rate trends and how much you can expect to save.

Cost to Refinance My Mortgage

Depending on your lender, mortgage refinance may cost you about 6.5 percent of your loan amount. Just like in your first mortgage, you will go through the process once more of home appraisal, credit checking, document registration and all those other details. The process can cost a tidy sum. The largest cost items in refinancing, however, are the points and other fees charged by your lender. A point is usually equivalent to one percentage point of interest. So while all other costs combined may total about 2 percent, lender’s points and fees generally run up to 4.5 percent. You must choose your lender well.

How Long Am I Staying

Your calculations may show you will definitely save on interest payments. Your lender may give you affordable quotes on refinancing costs. But, if you plan to move out of your home in a year or two, you may be better off without refinancing. Mortgage refinance involves costs on your part (your investment), and refinancing makes sense only if you can recover your costs and get a return on your investment (your interest savings) before you pay off your mortgage. You must make sure you will recover your costs before your planned move.


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