Online Mortgage Refinancing Loans Advice - Refinance and You Could Save a Lot!

Weigh the costs and benefits of mortgage refinancing to determine if you’ll come out ahead. Your mortgage may have a 30-year term, but not many homeowners stay with the same mortgage for that long.

In fact, the average American refinances his or her mortgage every four years, according to the Mortgage Bankers Association. That’s because paying off your present mortgage and taking out a new one can mean big savings over a several year period.

However, mortgage refinancing comes with a price in the short term, so it’s important to consider both the costs and benefits before making your decision to refinance.

Why refinance? Here are some reasons to consider refinancing your mortgage:

• To obtain a lower fixed interest rate. If you took out a mortgage several years ago and interest rates have dropped, refinancing may lower your payments considerably. A $150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of $1,100. The same mortgage at 6 percent will have a monthly payment of less than $900 a month.
   
• To change to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the uncertainty of an ARM stressful. If rates are on the way up, you might consider locking in a fixed rate at an affordable monthly payment. On the other hand, if you want to reduce your monthly payments and are ok with the interest rate changes of an ARM, it could save you money to refinance to an ARM.
   
• To improve the terms of your ARM. Mortgages with adjustable rates have protective caps that limit how much your payments can rise in any given year and over the length of the loan. You may be unhappy with the caps on your current ARM and feel you can negotiate more favorable terms if you refinance.
   
• To buildup your home equity faster. If a change in your financial situation has made it possible for you increase your mortgage payments, you might want to refinance your mortgage with a shorter term. The higher payments will let you to pay off your mortgage more quickly and save on long-term interest charges. However, if you are disciplined you can also decide not to refinance and simply pay more towards your principal each month.
   
• To lower your monthly payments. Refinancing for a longer term will lower the amount you have to pay each month. You will end up paying more in interest charges over the life of your loan, but if you’re having trouble making your current payments, refinancing for a longer term could provide some relief.
   
• To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to take cash out of your home for a major expense. This is called cash-out refinancing. The benefit of taking out a loan secured by your home is that you can get a lower interest rate than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is more than your current rate, a home equity loan or line of credit might be a better choice.

Is mortgage refinancing right for you?
If you’re refinancing in order to pay less interest, you probably won't see the savings right away. That’s because lenders usually charge fees when you refinance, and you may also have to pay a penalty for getting out of your old mortgage. To determine whether refinancing makes sense for you, consider this:

• How long you plan to be in your home. If you expect to move in a year or two, you may never realize the full savings you’d get from refinancing. As a rule of thumb, the longer you plan to stay in your home, the more sense it makes to refinance.
   
• The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months’ worth of interest payments.
   
• The costs of the new mortgage. When you take out a new loan, your lender may charge fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of dollars. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least 1/2 percent lower than your current one.
   
• The true difference in borrowing costs. When you’re thinking of refinancing, remember that the interest rate doesn’t reflect the entire cost of the mortgage. The amount you pay over the life of the loan will also be affected by the length of the term, whether your rate is adjustable or fixed, whether you paid discount points, and what upfront fees you incur.
   
• Your reduced tax savings. If you claim mortgage interest on your tax return, refinancing to a lower rate will mean that you’ll have less mortgage interest to deduct. You will still save money overall, but your real savings from refinancing may not be as large as you first believed. Consult a tax advisor who can help you understand the tax implications of refinancing.

The break-even point
In the end, deciding whether the cost of mortgage refinancing is worth it comes down to one question: “How long will it take before I start to save money?” In theory, this is a simple calculation. You start with the amount you will save by lowering your monthly payment. Then you add up all the costs associated with refinancing and divide the total by your monthly savings. This will show the number of months it will take to reach the break-even point.

For example, let’s assume that refinancing would lower your payment from $1,000 to $800 (for a savings of $200 per month) and your prepayment penalty, closing costs and points add up to $5,000. Divide $5,000 by $200 and you’ll see that it would take 25 months to realize the savings.

In reality, however, your break-even point also depends on other factors, including your tax situation and whether you pay closing costs upfront or add them to the principal of your new mortgage. If you are refinancing and your home has appreciated in value, you may also be able to save by canceling your PMI insurance.

Using the internet is a great way to get a low cost home mortgage refinancing loan quote. It only takes a few minutes to apply online for a refinance mortgage, and have competing loan offers come directly to you. If you're looking to get cash out of your home or a lower interest rate, then a mortgage refinancing quote may be just what you're looking for.