Refinancing your mortgage is an
option you may want to consider, as doing so offers the
possibility of lower monthly payments. Another plus of a
mortgage refinance is the possibility of using your home's
equity to pay off outstanding credit card debt – and you can
still deduct mortgage interest at tax time.
 Refinancing is all about the interest rate, so the
first step in deciding if it's right for you is to scour
Sunday newspapers looking for current interest rates,
usually found in the real estate section. Or, you can
contact a mortgage broker to do the work for you.
 Determine what type of mortgage is best suited to
your financial situation. You can choose fixed, adjustable,
or a hybrid of the two.
 Compare the rates you find to what you're
currently paying on your mortgage.
 Use a financial calculator or an online mortgage
calculator to find out how a new interest rate would affect
your monthly payments, taking into account the amount your
currently owe on your home loan. Use the following
information in your calculations: current loan amount
including closing costs (points, title, and escrow fees),
new interest rate, and period of the new loan.
 Subtract the new monthly mortgage payment from
your current one to determine the amount you will save by
refinancing.
 To calculate how many months it will take to
benefit from a home mortgage refinance, divide the monthly
savings into the total cost associated with the loan (all
fees included).
 Refinancing is financially feasible if you plan on
staying in the same home longer than the amount of time it
will take to recover your initial investment.
When making a decision to refinance, take into account the
reasons for refinancing. Are lower mortgage interest rates
tempting you to refinance, or the possibility of using some
of the equity in your home to rid yourself of accumulating
debt? If you plan on refinancing for the latter goal, add up
the monthly payments of all the loans you plan on paying off
and compare that amount to the new monthly mortgage payment.
Just be aware that if you plan on refinancing in order to
pay off other loans and debt, treat the refinancing as a
loan – it will have to be repaid eventually. |
