Questions

There are a lot of lingering questions about mortgage refinance. Since refinance helps you lower your monthly payment and interest rates a lot of people believe there is some sort of catch to it. There is no catch to mortgage refinance, it's just good business. So what are you waiting for?

Is Mortgage Refinancing Right for You?

Now that you know the general reasons why you should consider mortgage refinancing, you need to determine if it's right for your unique situation. Basically, deciding on mortgage refinancing comes down to a cost/benefit analysis. There are many benefits to mortgage refinancing that we've already enumerated for you, but there also some costs associated with it. Here are some questions to ask yourself to see if mortgage refinancing is right for you.

  • How long do I plan to be in my present home? If you know you will be moving within the next couple years, you probably won't be around long enough to reap the benefits of mortgage refinancing with your current home. As a general rule, the longer you plan to stay in your current home, the more you will benefit from mortgage refinancing.
  • Do I have a prepayment penalty on my mortgage and, if so, how much? Some mortgages will assess a penalty if you pay them off prematurely. The amount of the penalty will vary by mortgage, but it is typically a percentage of the remaining balance on the loan. Find out what your prepayment penalty will be. If it is a hefty sum, you might want to reconsider mortgage refinancing.
  • How much will I lose in tax savings? Do you claim mortgage interest on your taxes? If so, using mortgage refinancing to lock in a lower rate will mean you won't be able to deduct as much interest. You probably will still be saving money, but it might not be as much as you initially thought once you consider reduced tax savings. The best way to determine the costs and benefits of tax savings is to consult an accountant or tax advisor.
  • How much will a new mortgage cost me? Mortgage refinancing will require an initial outlay of cash, usually in the form of various fees. Such fees might include application fees, appraisal fees, insurance costs, title search fees, legal fees, and insurance and origination fees. It is also common for mortgage lenders to charge discount points, which you will have to pay to lock in your lower interest rate. Fees usually will not outweigh your savings with mortgage refinancing, as long as your present mortgage is % to 5/8% higher than the going interest rate.
  • What is the total cost of mortgage refinancing? Don't just look at the disparity in interest rates between your old and new mortgages to determine your savings. Make sure you're taking into account the total cost of borrowing. The total cost of borrowing will be impacted by the length of the loan's term, what initial fees you incur, whether you have to pay discount points, and whether your rate is fixed or adjustable. The best basis of comparison for mortgages is to look at the APR, as all lenders are required to compute this number the same way.

Mortgage Refinancing