How to Know When It Is Worth It to Refinance

When is it worth it to refinance? When interest rates drop there is a lot of talk about mortgage refinancing. But how do you know if it is right for you? Run your mortgage through this grid, and you will know whether or not to call a mortgage refinancing broker.

Difficulty: Moderate

Instructions

1. LOWER YOUR INTEREST RATE TWO POINTS.
   
   That's a general rule of thumb that works for most mortgage refinancing situations. If you can lower it that much, chances are you will recoup mortgage refinancing costs quickly.

2. KEEP CLOSING COSTS DOWN.
   
   If you can talk with your current mortgage lender about mortgage refinancing you may be able to keep closing costs to a minimum. They want to keep your mortgage on their books and earn the interest. Make sure your mortgage refinancing won't cost more than its worth through closing costs.

3. LOWER YOUR PAYMENTS OR PAY OFF EARLY.
   
   Mortgage refinancing should save you money. That seems like a no brainer, but often mortgage refinancing companies are tricky. If you lengthen the terms of the mortgage, you will spend more in the long run. If you can keep the same length and lower payments, you saved money. If you can keep the same payment but shorten the term (15 years instead of 30, or 20 instead of 30) you save money with mortgage refinancing.

4. STAY OUT OF FORECLOSURE.
   
   If you lost your job, were laid off, or have your hours cut money could be tight. If mortgage refinancing keeps you able to pay the mortgage even if it lengthens the terms of the mortgage and you pay more in the long run, its worth it. A mark on your credit is very expensive over time. Use mortgage refinancing if it keeps you in your home.
   
   See more tips and warnings about mortgage refinancing in the next section below.

Tips & Warnings

• Call around to several mortgage brokers for the best mortgage refinancing rates.
• Document all income and cover all of your bases to prove you can pay the mortgage.
• See related articles and resources on this page for more.
• Don't burn through your cash in mortgage refinancing. If you get stuck, the mortgage company will still foreclose in the future. Give yourself buffer.

Resources

• More on When to Refinance

[watersong]

on 8/30/2009 Thank you for trying to help people get out of or stay out of trouble. 5*

[excellence12]

on 8/29/2009 Especially important information given our economic situation. Well written and presented. It's another *5,* Dave. Well done!