Refinance Your Home
Mortgage lenders usually advise that when interest rates drop by two percent, refinancing becomes advantageous. This two percent figure is only a rough guideline, every situation will be slightly different. There are expenses involved with a refinance, although by taking advantage of the lower interest rates, your payments become lower and overall payback amount is less; so each refinance situation will have a slightly different break-even point after which it would produce a benefit.
Typically, most of the expenses and standard closing costs you face with a first mortgage will also be present with a refinance. No-cost refinance loans are available, although they typically carry a higher interest rate than a refinance would otherwise carry.
There are several reasons to refinance, although taking advantage of lower interest rates is a big one. Another reason to refinance a mortgage is to convert from an adjustable rate mortgage to a fixed rate mortgage, or to convert to a shorter term loan to save on overall interest charges. Some people may also wish to refinance a mortgage to obtain cash from existing equity.
When deciding whether or not to refinance, there are two things to calculate. Your monthly savings is an important figure, this is simply the difference between the old mortgage and the new one. The other figure is the overall total cost of refinancing. Consider the break-even point as well: this is the total cost of refinancing, divided by the monthly savings. For example, if it will cost you $2,000 to refinance a mortgage, and your monthly savings are $100, your break-even point is 20 months. Assuming you presently have $2,000 to spare, and you will live in the home for more than 20 months, then the decision to refinance may indeed be a prudent one.