How To Refinance

Refinancing your mortgage has become very popular with falling interest rates since it can save you a lot of money. However, this strategy does not work for everyone.

Since your closing costs increase, you have to figure out how long it will take for the monthly savings you can get with a refi to cover the increased closing cost and if you intend to stay in the home that long.

For example, it reducing your interest rate from 7% to 5% saves you $250 per month in mortgage payments, and it increases closing costs by $4,000, then it will take you 16 months to cover the cost of the refi. If you plan on staying in the home longer than 16 months, then this refi would make sense.

You should consider the terms of the mortgage. Is it variable or fixed rate? Does it make sense to pay fees upfront in exchange for a lower rate that will save money over the long term? These are the things you need to consider when shopping for a new mortgage.

You should definitely consider all of the lenders out there to find the best deal, however, keep in mind that it's less work for your current lender to do a refi, since they've already processed all of your paper work, and have all of your financial information, etc. With another lender, you're starting from scratch. It's still important to shop around though, and you should crunch the numbers using a mortgage calculator. A mortgage broker can also be helpful.

If you do this right, you can save yourself a lot of money over the long term by taking advantage of low interest rates.