Refinancing MAY lower your monthly mortgage payments.  The keyword here is MAY…  Refinancing, a simple word that can sometimes mean a complicated process is a process all homeowners should become familiar with.  If you are considering refinancing there are a few things to know beforehand so that you know what is expected of you and what you can expect from the process.  Refinancing to lower your monthly payments or to move from a variable interest rate loan to a fixed rate loan can be a great idea but it is critical that you know exactly what you’re signing up for before you commit yourself and your home to a new deal. 

Variable or fixed.  Make sure you know if you are getting a fixed or a variable rate mortgage.  With a fixed mortgage your payments will remain the same for the length of your mortgage (with the exception of a rise or dip in property taxes).  A variable rate mortgage typically starts with low monthly payments that adjust over a period of time.  With a variable rate mortgage the payments can go up dramatically after a period of time.

Is it a good idea to refinance? Sources say that refinancing makes sense if you can reduce your current mortgage by 2 points or more.  Analyze whether the cost of refinancing is worth it by figuring out how long it will take you to cover the refinancing cost and whether you plan on being in your home that long.  If your new mortgage will save you $200 a month in mortgage payments but it cost you $2,000 to complete your refi then it will be 10 months before you recoup the cost.

Length of your mortgage.  Shorter loans have lower interest rates but higher monthly payments.  Mortgages are usually 15 years or 30 years in length.  Make sure that your new loan doesn’t have penalties associated with an early pay-off if your plan is to pay your home loan off early.

Refinancing can make good financial sense.  With mortgage rates at a 30 year low, refinancing is at an all-time high.  Weigh all of the factors and make sure that your new mortgage is exactly what you are looking for before signing on the dotted line.

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