How to Know When to Refinance Your Mortgage

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By Guns
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There are number of ways to determine when you should refinance your mortgage. This is a simple approach to use as a starter for your decision.

Difficulty: Easy

Instructions

Step 1

Using a spreadsheet or a piece of paper write down this information for your current mortgage. Number of payments left (months or years), total monthly payment, how much of your payment is principal and interest, insurance, and taxes.
Step 2

Go to a website like http://www.bankrate.com/ and see what the current interest rates and refinance expenses are for home loans. Use the loan calculator to calculate how much you would have to pay based on current interest rates and the same time period you have left on your current mortgage. Make sure to include the cost to refinance.
Step 3

Use the loan calculator to calculate how much you would have to pay based on your current mortgage balance, current interest rates over the same time period you have left on your current mortgage. Make sure to include the cost to refinance.
Step 4

Compare the payment you calculated in step 3 with your current payment you recorded in step 1. Ignore insurance and taxes for the comparison, as they should not change based on refinancing. This is the amount of savings per month.
Step 5

Now divide the cost of refinancing by the savings per month to determine the number of months it will take to break even. If you are planning to stay in the house longer then the months calculated, you will be in a better place by refinancing.

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