When to refinance mortgage

The following is a guest post by bills.com.

Refinancing your home is essentially a great tool to restructure your debt (mortgage) or debts (mortgage + other loans) into 1 new mortgage with a lower interest rate. The monthly savings can be substantial in most cases thanks to rock bottom rates. However, in other cases you could end up losing because of the associated costs. If you’re asking yourself “Should I refinance my home?” The following factors will shape your answer.

Consider the costs

Refinancing costs can run up to several thousand dollars; nothing is for free so take that into consideration when you decide to take this step. Do not be fooled by those who advertise refinancing at no cost as the cost will be included in your new loan. What makes refinancing worth it is the answer to this question: how many months will it take to recoup the closing costs before real monthly savings kick in? Obviously, the number of years you plan to live in your house will have a lot to do with it.

If you are refinancing in order to extend the mortgage term such as from 20 years to 30 years for example, remember that even though you reduced your monthly payment, you might end up paying much more in interest over the life of the new loan. You should also avoid becoming a refinancing junkie as the closing costs will eat any savings you might have accomplished previously.

Do not refinance your mortgage if the aim is to raise money destined for luxurious spending. In the same line of thought, if you refinanced your mortgage in order to consolidate outstanding loans make sure you avoid racking up debt on credit cards or the equity line again.

Consider the timing

If you don’t plan on staying in your house for very long, you should probably skip refinancing your mortgage as you might not fulfill the minimum number of months in savings to recoup your costs. If you have a few years left on your term, you could be paying so little interest at this stage that the cost of refinancing outweighs the benefits unless you are looking to consolidate debt or cash out for personal reasons.

Finally, before going for a lower interest rate, make sure the economic benefit is guaranteed. This usually entails staying in your home long enough and arming yourself with knowledge in order to negotiate the best deals. Just like car salesmen, lenders and brokers are out to make money off of you. Research your mortgage refinancing costs, shop around and you will set yourself up in a position to strike the best deal.

This was a guest post by bills.com.

[Mich] For a successful mortgage refinancing scenario, you will need to become best friends with a calculator. Have you been through a refinancing? did it save you a lot of money? How much paper work did you go through? One of the fastest options to reduce your home interest rate is through FHA Streamline.