Mortgage Refinancing – Things to Consider

At one time mortgage refinancing was based on whether or not the lower monthly payment savings was worth the costs involved in acquiring a refinance loan.

Today the costs to refinance house and home are much less thanks to new no cost and low cost refinance rate packages.

Mortgage refinancing has never been as appealing as it is right now.

Refinance rate packages minimize or in some cases eliminate the out-of pocket expenses that you have to pay to initiate mortgage refinancing. Please note however that associated costs to refinance house and home are still there. Borrower, beware. With these new refinance rate packages that promote no cost or low cost mortgage refinancing some of the costs are hidden or come out in higher interest rates.

The general rule of thumb with traditional mortgage refinancing is that any new refinance loan should be a minimum of one percentage point under the rate of your current mortgage. However with no cost and low refinance rate packages, it may be worth your while to refinance to obtain even a small rate reduction. Again, it all depends on the overall costs you will have to pay whether they are upfront or over the length of your refinance loan.

The length of time you plan on staying in your home can also play a significant role when it comes to mortgage refinancing. If you’re planning on moving in a few years, you may find your month to month savings may not balance out the refinance house and home costs.

If you plan to reside in your home for three years or less, you may have little or nothing to gain from mortgage refinancing except a lot of paperwork. On the other hand, if your plan is to stay in the home for five years or more, considerable savings can be had if you were to refinance.

Earlier we looked at no cost and low refinance rate packages and how you had to be aware of the hidden costs in such refinance packages, now lets look at traditional refinance loans and the questions you need to have answered before you make a decision to refinance house and home.

Your lender should be able to show you an amortization chart that will display the real expense of pre-paying interest points as well as a spreadsheet for a modified Annual Percentage Rate (APR). This spreadsheet will show you the cost of credit as a yearly rate. This annual percentage rate is usually not the same as the interest rate. The APR will be higher than the interest rate stated on your mortgage because it includes the interest rate, loan discount points, fees and mortgage insurance.

Remember, if you’re considering a no-points refinance loan, it’s important to take the time to consider the additional interest you’ll be charged as well as other fees that may be hidden in higher mortgage rates.

Also if you’re on the tail end of a fixed rate mortgage loan or in other words, you have already taken advantage of most of your tax deductible interest, taking out a refinance loan could be beneficial. When you refinance rate you can deduct the interest and prorated points year by year.

Some borrowers also look to mortgage refinancing as a way of shortening the term of their mortgage. While refinancing house and home can be a good way of building equity faster you also need to understand that your refinance rate on short term mortgage refinancing (even when the rates are low) will result in a higher monthly payment. Short term refinance rates do offer short term financial’ pain but for long term gain. And as a result of a short term refinance house and home you’ll pay much less in total interest over the life of the refinance loan.

The bottom line with mortgage refinancing is to ask questions to get the answers you need to make a wise refinance house and home decision.