Refinancing Your Home Mortgage: When to Do It!Article Posted by Expert Author: Tony Caro on 03/29/2013
Choosing a mortgage may be the most important financial decision you will make. But refinancing your home mortgage comes in at a close second as well. A couple of years ago, it was generally thought that a refinance was only worth it if the current rate is two percentage points lower than what you are currently paying. But current conventional wisdom has proven that theory wrong. The old precept isn’t valid any longer thanks to alternatives such as the “no- cost” refinancing options. “No- cost” means that at the time of closing nothing would be paid out of your own pocket. This is made possible when either the lender’s fees is rolled into your new loan balance or the rate is a bit higher than what you could get if you paid the lender's charges up-front.
The real question is if you do refinance your mortgage, how long it will take to recoup your costs. To find the answer, some compare monthly savings next to up-front costs. So for example, if you can save $100 a month on your mortgage payment by refinancing, but you end up paying $2,500 for the refinancing itself, then you have to stay with the new loan for 25 months to justify the difference. So if you are planning to move in that time, refinancing wouldn’t be worth it.
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