How to Refinance Your Home and Save Money

Interest rates are a moving target. If your mortgage's interest rate is considerably higher than current levels, consider refinancing to lower your monthly payments. You can also pull out cash to make a major purchase or pay for some needed remodeling.

Difficulty: Moderate

Instructions

1. See How to Shop for a Mortgage and How to Obtain a Home Equity Loan for a summary of the process.

2. Ask yourself how long you're going to stay in your home. Divide the cost of refinancing by 12 to find out how many months you need to stay put for a refinance to be monetarily worthwhile. Typically you need to stay put for at least three years and secure a rate at least 1 percent lower in order for refinancing to make sense.

3. Contact your current lender first if you've just purchased your home. With a recent appraisal on file, you may save closing costs and be able to move more quickly by working with the same mortgagor. Investigate online lenders as well.

4. Pay attention to fees and closing costs, as with a first mortgage. These will include the cost of getting your house reappraised and may differ a great deal from one lender to another.

5. Consider limiting the term to be no longer than what is left on your current mortgage, or you'll end up with much lower payments but a much longer mortgage.

Tips & Warnings

• Have your tax returns, bank account statements, credit card statements, W-2s, brokerage account statements, title and purchase agreement, proof of home owner's insurance, taxes and other materials ready.
• Lock in a rate while you complete your mortgage application.
• Use the refinancing calculator on Bankrate to calculate potential savings (see Resources).

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