Investugating Mortgage Refinancing

Investigating Mortgage Refinancing

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Mortgage refinancing is a hot topic these days, popping up in all sorts of places in the news, not just the financial section. Since so many people are facing rising interest rates every time their adjustable rate mortgages reset, and since the federal government keeps lowering the prime rate, there is no better time for anyone with a current mortgage loan, no matter how new or how old, to think about mortgage refinancing. But how can you be sure if this move is right for you? We’ll cover a few basic things that you need to consider.

For one thing, what is your current mortgage loan rate? If it’s over 6%, then you might want to consider mortgage refinancing, since chances are you can get a better rate than that at most banks. If it’s under 6%, we’ll cover that in a moment.

But first, let’s talk about how you can know whether or not you’ll be saving any type of money through the process of mortgage refinancing. If you open the internet and find a mortgage amortization calculator, you can type in your current mortgage balance and current interest rate. Make sure the calculator will amortize this monthly; this will show you how much you’ll be paying in monthly payments and how much total interest you will pay after your mortgage is paid off. Make a note of these numbers on a spreadsheet or even just a sheet of paper.

Now, let’s take another look at those numbers as if you’ve already been through the process of mortgage refinancing. Let’s suppose you could reduce your mortgage loan’s interest rate by just a half a percent, say from 6% to 5.5%. Punch those numbers into that mortgage amortization calculator and see what it gives you.

How much less of a monthly payment would you be paying? How much less interest would you wind up paying over the life of your loan? Are these numbers substantial?

Before you jump on the bandwagon of mortgage refinancing, there are some other things you need to consider, and this information is for those with a lower interest rate already. For one thing, mortgage refinancing is not free, and it’s not even cheap. There are usually prepayment penalties and many other fees that your bank or lender will charge. Remember when you first got your original mortgage, and there were appraisal fees, loan origination fees, and so many other fees you couldn’t count them all? Mortgage refinancing is much the same way. You need to find your breakeven point, that is, the point when the money you save with your new mortgage will equal and then surpass the amount you save with your new mortgage.

Once you examine all these details and numbers and facts and figures, and do some real calculating, then you can decide if mortgage refinancing is right for you. And don’t hesitate to ask your bank or lender for help with all these steps; after all, that’s what they’re there for.

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