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When interest rates were two points below your current mortgage
rate, it was considered a good rule of thumb to refinance. But
with today's low closing costs, a difference of one percent can
save you money on your interest costs. Even with low fees, it
only worth it to refinance when you can be sure you can recoup
the mortgage costs.
Figuring Up Costs
Refinancing is simply paying off one loan and taking a new one.
The same fees that you paid with the first mortgage, you will
probably have to pay for the second mortgage. Usually, loan cost
range between $2000 to $6000 for a $200,000 loan. You will also
have to add in points for lower interest rates, adding
additional thousands. The only way to recoup these costs is to
keep your mortgage for several years.
Interest Rates
To make refinancing worth it financially, you need to be sure
that interest rates are low enough to pay for the cost of
refinancing. One simple way to figure this out is to use a
mortgage interest calculator from one of the lending sites.
These calculators will give you an estimated monthly payment and
the total cost of the interest. By punching in different
interest rates, you can see your potential savings.
Short Term
Besides interest rates, you also need to compare terms. The
shorter the loan the less you will pay in interest. Ideally when
you refinance, you should choose a loan with a shorter term. You
can also choose a biweekly mortgage, where you pay half a
mortgage payment every other week, which can reduce your loan by
years.
Finding Low Cost Lenders
Not all lenders charge the same fees or interest rates, so you
can save thousands by searching for lenders. You can easily go
to the big name mortgage lenders and request quotes, but some
smaller financing companies offer better deals. The easiest way
to find them is through an online mortgage broker site.
Basically, you enter some basic information about yourself and
income, and then you receive several different quotes. From this
list of offers, you can decide who is offering the best refi
package.
About the author:
See my recommended Home
Mortgage Refinance Lenders for the lowest rates online.
Carrie Reeder is the owner of ABC Loan Guide, which offers help
finding low rate home
mortgage loans.
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