Refinance Mortgage and Save

04/08/09

Consumers in this country are hunkering down and trying to cut costs as the economy worsens. Many are trying to build up their savings. And others who have lost their jobs or feel layoffs looming are trying to get by on less money. One of the easiest ways for home owners to cut monthly costs is to refinance. Mortgage payments are usually the biggest bills consumers have each month. By undergoing a refinance, mortgage loan costs can be reduced significantly. Most people choose to refinance to save money on monthly payments. But some do it to gain peace of mind, as they trade in an adjustable rate mortgage for a fixed rate one. Whatever the reason for a refinance, mortgage holders can currently benefit from some of the lowest rates the country has seen in decades. The second week of February, the average interest rate for a 30 year fixed rate mortgage hovered at 5.19 percent.

As the current rates offer a great opportunity to refinance, mortgage holders may decide now is the time. But refinancing may not be the wisest choice for everyone, regardless of how low the rates are. Deciding if refinancing makes sense for you takes some simple calculations. Your first step is to figure out the total of the actual refinancing. Things like title fees, closing costs, appraiser and lawyer fees will be added up here. Double check with your current bank to see if you will be saddled with any penalty fees for paying off your current mortgage earlier than originally anticipated. Your next step is to figure out how much you will save each month with the new refinanced rate. Do this by subtracting the anticipated new monthly payment from the current one. Now you know your costs and monthly savings. The third step is to determine if the costs will be worth it to you, given how long you plan to own the house after the refinance. Mortgage refinancing might not be beneficial if a homeowner anticipates selling the property soon after a refinancing. That is because of how many months it takes them to actually start saving once the costs of the refinance have been paid. This is called the break even point. Take your total cost and divide by the amount you anticipate saving each month, and that will tell you when you will break even after the refinance. Mortgage refinancing is generally a good decision for those who expect to own the property past the point when they break even. Refinancing is generally not a good idea for those who will sell before they recoup their costs.