Refinance Mortgage Costs
Posted 08/17/09
If you plan it right, refinancing a mortgage can be a wise financial move. The economic rollercoaster ride of the past year has left many wondering if it is a good idea to refinance. Mortgage payments can be a hefty burden during a time when retirement portfolios have taken a hit and job insecurity is looming for some. A lot of consumers who bought their properties when real estate was at the peak are left holding the bag of decreased values now. As adjustable rate mortgages reset to higher rates, consumers with those types of mortgages will see a big increase in their payments. A quick internet search yields a plethora of sites offering refinance mortgage tips and guides. Deciding what is best for your own budget can be a bit daunting.Refinancing is an individual decision that depends on your financial situation. The savings that can be gained each month on mortgage payments is a common reason people refinance. Mortgage refinancing done at the appropriate time can help your budget in the long run, but you need to factor in all the costs and benefits incurred during the time you anticipate owning the house. Your first step is to figure out how much you would save each month under the new interest rate. Then add up all the costs you think you will incur for the actual refinance (such as title preparation, lawyer costs, appraisal and filing costs.) Third, divide the total cost of the refinancing by the estimated monthly savings. This will tell you how many months it will take you to recoup the cost of the refinancing, referred to as the "break even" point of the refinance. Mortgage refinancing would not make sense, if you plan to sell the house before or on the break even point of the refinance. Mortgage holders whose adjustable rate mortgage will reset soon, may choose to refinance with a fixed rate mortgage, regardless of the break even point. Obtaining a steady fixed rate mortgage in the current rocky economy often outweighs the costs of a refinance. Mortgage holders can also consolidate a higher interest loan or credit card debt with their refinance. Mortgage payments under a fixed rate mortgage may offer lower interest rates than those offered by the credit card company.
When deciding whether to refinance, mortgage holders should have a solid understanding of their current economic circumstances and monthly budget. Make sure to calculate the savings against the costs of the refinancing and the duration you expect to own the home. Make sure you are clear on the interest rates, terms and conditions of a new mortgage before you sign those papers.