Should I Refinance My Home?

should I refinance- 150x150With interest rates at an all-time low, many homeowners are beginning to wonder whether they should refinance their mortgages. There are many things to consider when thinking about refinancing so be sure to put in the effort to research all of the things you should know before making a final decision. In helping you with your decision, also look at Pros and Cons of Refinancing as well as our Top 10 Refinancing Tips. But first, take a look at these resources we have put together to help get you started.

Crunch Numbers: Refinance Calculators

There are many refinance calculators available online, and you can use any of them to crunch numbers and determine the specifics of your mortgage situation. The calculator will ask you to enter several facts about your existing mortgage: the current amount of your loan (the balance owed), the interest rate you are paying, the term of your mortgage (fifteen years, thirty years, etc.) and the year your mortgage originated. (A side note: If your loan is not a fixed rate mortgage, there will be some guess work involved, since not even a computerized calculator can predict future interest rates.)

Next you will be asked to provide specific numbers for the proposed new loan. The amount of the loan might simply be the amount of the balance you still owe on the original mortgage, or perhaps you would like to add an additional amount, such as balance owed on credit cards, so you can use the refinance to consolidate other debts as well.

Next you will be asked to fill in the interest rate for the new loan. The resources provided with online refinance calculators should include the current interest rates for standard loan types (thirty year fixed rate, etc.), so you can select the appropriate number for the loan for which you intend to apply. Finally, you will be asked to provide the term of the new loan, and the refinance fees, which your bank can estimate for you.

Comparing the Old and the New

Once you have crunched numbers with the refinance calculator, you will have the information in hand to help you make a decision about the potential advantages of refinancing. Some of the relevant statistics will include the prediction of how much time it will take you to “break even” from the costs of the refinance. For example, if it will take four years for you to offset the expense associated with refinancing, the refinance will not be worthwhile if you do not intend to stay in the house for four years. But if you do intend to stay long enough to benefit from the refinance, there are still other factors to consider.

  • Will the refinance fees be rolled into the new loan, or will you have to come up with sufficient funds to pay the fees upfront?
  • Does refinancing lower your monthly payments?

One option to consider, if your income allows, is to keep paying the same monthly amount you have been accustomed to paying, with that extra amount going toward the principal. The loan will be paid off more quickly, and you will save money on the total interest you would otherwise have paid. You can use another online calculator to find out how much money this will save you over the life of the loan. With the help of calculators to break down the numbers, you can easily make a decision about the advantages of refinancing.

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