How to Refinance your Home (Or should you?)

Intro: So you are thinking about refinancing your house. I have done it twice. One time was a good choice, the other not so good.

Step 1: When considering refinancing your home, the first thing to think about is how much it will cost you to refinance your mortgage and how much you will save. They charge you things like points, closing costs, and private mortgage insurance (PMI), premiums, an appraisal fee, a title search fee, recording fees, and other fees associated with processing and finalizing your mortgage just like your first mortgage.

Step 2: The longer you are planning on staying in your house the better chance you will have at saving money when you refinance. The charges and fees when you refinance, must be less than what you will save. Usually, if you save 2 percent on your interest rate it will lower your payment and be a good decision.

For example: if your payment is $898 a month for a $100,000 mortgage for 15 years at 7 percent. If you refinance to 5 percent for 15 years your payment would go down to about $790 dollars which is a savings of $108 dollars a month. If the fees equal $2000 dollars it will take you 20 months to save any money, it may not be a good idea. But if you stay more than 20 months you will save money in the long run. $108 a month for 15 years would save you $19,440 dollars just in reduced payments. So the fees are definitely worth it, if you plan on staying in your home long enough.

Step 3: If you have an adjustable rate mortgage it almost always a good idea to refinance, unless you think interest rates are going to drop some more. Adjustable rate mortgages are always a gamble, because you never know what will happen with the rates from year to year.

Step 4: There a lot websites with mortgage calculators to compare your cost and see if you will save money. Do your research and you could save a bundle. Compare rates and fees between banks.

Tip and Warning: Try not to increase your years on your mortgage if you do refinance you will pay a lot more interest. Try to do a 15 year or less mortgage. You will be happier in the long run.

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Comments (1)

lighthouse1958 said:

	... It costs me about 5,000 to refinance a couple of years ago but in my case they dropped my 10 years off my loan which I liked better than having my payments dropped. This is a good option for those wanting to pay your house loan off quicker. My husband will be retiring soon and we don't want a house payment when this happens.
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April 11, 2010
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