Thinking about refinancing your mortgage?

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Before making a decision, borrowers should consider these factors. You'll save money if you stay in your house longer than the "break even point" before refinancing. The " break-even period" is the length of time it takes for the lower interest rate to cover the cost of refinancing. The greater the difference between rates – your original rate and your refinanced rate – the shorter the "break even period." It will take longer to reach the "break even period" if the difference between rates is slight. The "break even period" is calculated by taking the difference between the original mortgage payment and the new mortgage payment. You then take that figure and divide it into the cost of refinancing the loan and the answer will equal the number of months to reach your "break-even period."

Find the best deal by shopping around! Your current loan provider should be the last one you approach. This will ensure you get the best deal because your provider will have an incentive to beat his competitors. Your current provider will fight for your business if he realizes there is the possibility you will go to someone else. Among the advantages of refinancing with your current loan provider is that he can usually lower settlement costs, and in some instances can lower your rate without refinancing. The disadvantage to using your current loan provider is he has won your business, and may not work as hard to give you the best deal or service. That is why your current loan provider should be the last provider you approach.

If you're not sure what to do – repay your loan in full or refinance – consider refinancing first. You will earn the same percentage as the refinanced rate as you would if you repaid the loan. Think about the benefits of refinancing if you aren't planning on repaying your loan in full early.

Whether refinancing will lower costs is a mute point if the primary goal is to take out cash. The issue becomes the cost of raising cash with a cash-out refinance versus the cost of raising cash with a second mortgage. The second mortgage may be the lower cost option, even when the second mortgage rate is higher than the cash-out refinance rate. This is because the second mortgage will allow you to retain the lower interest rate on the current mortgage. These are generalities, and individual circumstance must be weighed in every situation. Find out how you are affected.

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