Refinance Mortgage Loan

Should you or shouldn't you?

Getting a refinance mortgage loan can be a smart move for many homeowners, especially if the interest rates are low. In the world of finance, interest rates directly affect the way mortgage rates behave. So if the interest rates are low, then mortgage rates will also be low. Low mortgage rates in turn lead to bigger savings on your monthly payments; and with a refinance mortgage loan, you can take advantage of this basic financing concept and reduce your monthly payments, while at the same time increasing your monthly savings.

Another important benefit of refinance mortgage loans is that they give the borrower more flexibility. They allow you to change loan terms from a long one to something shorter. This allows you to pay off the principal more quickly, thus saving you from paying a bunch of extra interest charges.

Here are Some Tips on How to Refinance:

Make sure that the drop in interest rate is enough to make a refinance mortgage loan worthwhile.

To determine if refinancing will save you money, compare the total costs of refinancing, as well as interest rates.

Watch out for the amount of points you’re being charged. Points are basically interest that you pay up front, which typically makes them tax deductible. Generally, the lower the interest rate, the more points the lending institution will charge. So you’ll pay the interest, one way or another.

While shopping around for a lender, ask each for a list of charges and costs you must pay at closing. Watch out for hidden fees!

A lower interest rate gives you less interest to deduct on your income tax, which may increase your tax payments and decrease your total savings from refinancing.

How much will it cost to refinance your mortgage?

A refinance mortgage loan generally means paying off your original mortgage with the proceeds of a new loan. Your refinance mortgage loan acts like your typical mortgage loan. That means you pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees. There may also be a penalty charged for paying off your original loan early, although some states prohibit this.

Having said that, the total expense of a refinance mortgage loan depends on all those factors – interest rate, number of points, and other costs. Lenders will charge several points in order to offer you the lowest rates. With these, the total cost can often run three to six percent of the total amount you borrow. So, for instance, let’s say you borrow $100,000 on a refinance mortgage loan. For this amount, the lender may charge you between $3,000 and $6,000. However, some lenders may offer zero points at a higher interest rate, which may significantly reduce your initial costs, although your payments may be somewhat higher.

The best way of determining whether you should refinance or not, is simply calculating how long it will take you to recover the cost of the refinancing. If the total cost of the transaction is $5,000 and your monthly savings are $250, it means it’ll take you 20 month ($5,000 divided by $250 = 20 months) before you’re breaking even. So don’t forget to also factor in the time you intend to stay in your home, before you decide to go through with the refinancing.