Once you’ve owned your home for a while, you might start to receive notices informing you of your mortgage refinancing eligibility, or you may have been told by a neighbor about how he or she saved money by refinancing. Before you start to evaluate your finances and do some number crunching it’s important to take a moment and figure out what the benefits of mortgage refinancing are and the costs involved.
To put it simply, refinancing your home means you’ll receive a new loan with a brand new set of terms. If your intentions are to request a lower interest rate, make lower payments or request a shorter term mortgage for the purpose of speeding up home equity, refinancing may be a good option. Refinancing also allows you the flexibility of opting for a fixed or adjustable rate mortgage.
When it comes time to decide whether refinancing is worth pursuing, a refinance calculator can provide the first step in figuring out all of the essential details like closing costs, interest rates, your home’s current value, etc. Enter information regarding your finances and the calculator can give you a good estimate of what your costs will be. If you plan on living in the home for a period longer than what it would take for the mortgage savings to recoup what you paid upfront, it might be worth moving forward.
If you do decide to go forward with refinancing, you will need to pay closing costs again, as you probably already did when you initially purchased your home. Usually this involves paying about three to six percent of your principal in refinancing fees as well as any potential prepayment penalties.