Mortgage Refinancing: When It Makes Sense, When It Doesn’t.

August 26, 2007 By Matthew Paulson

Home mortgage interest rates certainly aren’t as low as the hay-days of 4% and 5% home mortgages, but when doing home mortgage refinancing homeowners with good credit can still qualify for historically low-interest rates. 6.2% doesn’t seem so bad when you consider at periods in the 70’s, some people were paying a 19% interest rate on their home mortgages! Even though rates aren’t at all time lows, there still are good reasons for refinancing in many situations

Does refinancing make sense? If you can eliminate at least one-half point off your current interest rate, it’s generally a good idea to do a mortgage refinance. Anything less than that, and it’s not really worth putting in the effort to go about home mortgage refinancing. If you’re planning on staying in your home for less than five years, you also need to calculate whether or not you’ll pay more in closing costs than you save in interest.

What kind of loan should I get? Always search for “zero cost” mortgage rates, which means you do not pay any closing costs when refinancing. By only looking at zero cost mortgages, you are giving yourself a perfectly clear point of comparison between your existing mortgage and what you can get on the open market, simplifying the process greatly. With a zero cost home mortgage, you’ll pay a bit higher interest rate, but you won’t pay any of the closing fees.

How do you find good interest rates? Not all mortgage companies are the same when it comes to the interest rate that you’ll be able receive. When refinancing your home mortgage, Your best bet is to head on over to bankrate.com, select the type of home mortgage you’re interested and look for the lowest rate. Make sure the mortgage company is on the up and up, and go for it.

What about points? A point is equivalent to 1% of the total amount of money that you borrow when refinancing your home mortgage. The idea is that if you pay a point up front, the lender will give you a slightly lower rate, but more often than not people don’t keep their mortgages long enough for discount points to pay off.

Should I roll over my other debts into my home mortgage when refinancing? A lot of people refinancing will receive offers to roll over their other debts onto their mortgage, or take additional cash out along with their home mortgage. Generally this is a bad idea because it will likely increase the interest rate that you’re paying. In addition, if you have an over-spending habit and just clear the balance of your credit cards, you’re likely to charge them back up again, and next time you won’t have the option of rolling the debt into your mortgage.

What about Home Equity Loans? Many people choose to move their home equity loans into their primary home mortgage when they go about refinancing. Rolling in home equity loans when refinancing can give you a better interest rate and better terms than you would have received with your home equity loan.

What else do I need? Always be sure to get a good faith estimate when refinancing your home mortgage. This is a listing of all of the fees and costs that you’ll be paying along with an estimation of the closing costs and estimated monthly payment. This way you won’t be hit with any surprises when the first payment comes.

Doing a mortgage refinance can save you a lot of money if you have the numbers down and know what you’re doing, but it can also get you into big trouble if it doesn’t make sense to do a mortgage refinance, so make sure refinancing makes financial sense before you dive in head first.