Mortgage Refinancing At A Glance

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by: marciafreeman
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Date: Wed, 12 Nov 2008 Time: 5:51 PM
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Mortgage refinancing entails obtaining a new loan to pay off and replace an existing mortgage. Mortgage refinancing can be of great benefit in many situations.
Most commonly, people refinance their mortgage to take advantage of a lower interest rate, allowing them to save money over the life of the loan. Keep in mind, however, that there are usually lender fees and other costs associated with originating the new loan. You will want to make sure therefore that you will actually be saving money from the new loan. The time that you plan to remain in your home is important to consider, as well. If you decide to sell your home before you have gone through the refinancing period, you will spend more money than if you had never gone for refinancing in the first place.
Another situation wherein refinancing is a good idea is when the interest rate on an adjustable rate mortgage or ARM increases. If you think mortgage rates will continue to increase, replacing your adjustable rate with a new fixed rate mortgage will keep you from paying higher interest costs when the rates go up. If you think rates are likely to go down in the long term, it may be smarter to refinance into a new adjustable rate mortgage.
If you are having difficulty paying your monthly mortgage costs, mortgage refinancing will not only extend the duration of the loan, but will reduce your monthly payments as well. Although this can help you get through a difficult financial period, you will end up paying more in interest over the course of the loan. In addition, if the interest rates on your new mortgage loan is higher, you could end up paying the loan off longer than you intend on staying on in the home.
When you make the decision to apply for mortgage refinancing it is important to understand how much you will save each month and what the costs of refinancing will be. To determine if refinancing is really an ideal course of action to take, multiply the amount that you will save each month with the number of months that intend to live in your home. After that, deduct the total costs of the various fees that you will incur with the new loan. If the result comes out less than zero, it means that you will actually be losing money with refinancing. The longer you stay in your home, the more likely you are to break even or save money by refinancing your mortgage. Even if the rates that you will pay on the new loan is only a little bit lower than what you are currently paying, mortgage refinancing may still be a beneficial course of action.

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