Determining if You Should Refinance Mortgage

As the tough economic times continue to weigh heavily on the country, consumers are seeking ways to reduce their monthly bills. 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. And after a refinance, mortgage payments can often be reduced by a couple hundred dollars each month. The main reason consumers refinance is to simply save money on bills. But some do it to gain peace of mind, as they trade in an adjustable rate mortgage for a fixed rate one. Regardless of why you refinance, mortgage interest rates are at historically low levels right now. 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 not everyone may benefit from a refinance. You will need to do some basic math to find out if you should undergo a refinance. Your first step is to figure out the total of the actual refinancing. You will need to pay for an appraisal, inspection, documentation fees and lawyer hours. Make sure you include any penalties for paying off your original mortgage and any bank fees you will have to pay to obtain the new mortgage. 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. Thirdly, you will want to establish how much longer you anticipate owning your property to figure out if it makes financial sense to refinance. Mortgage holders do not generally benefit, for example, if they plan to sell the house shortly after they refinance. 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. To calculate your break even point, divide the costs by the estimated monthly savings of the refinance. Mortgage refinancing is generally a good decision for those who expect to own the property past the point when they break even. Those who plan to sell their houses before they reach that break even point, will likely not benefit from refinancing.