You might want to refinance to lower your mortgage payment or to access equity you have in your home for an important expense. When you’re considering refinancing a mortgage, you look at many of the same issues that you initially looked at when checking out your loan options, including the following:
How long do you plan to stay in the home?
What is your current interest rate?
What interest rate could you obtain on a new mortgage?
Will you be refinancing your mortgage and pulling out additional cash to use for other purposes, such as paying off credit-card debt?
If you have significant equity in your home, and you need to tap that equity to pay off high-interest, nondeductible debt, finance a child’s college education, pay for necessary home renovations, or any other purpose you deem worthwhile, refinancing may be your best option. However, refinancing isn’t the only option for tapping into home equity.
Be careful not to use any money that you obtain through refinancing as a quick fix for a systemic problem. If you're going to put your home at risk to pay off your credit cards, do yourself a big favor and don’t let it happen again.
With refinancing, you need to keep in mind that closing costs will be levied against you. It's safe to assume that somewhere between $1,200 and $1,500 is the typical cost to refinance.
The Should I Refinance Worksheet provided here helps you determine whether refinancing is a good idea.
Click here to download and print the Should I Refinance Worksheet.
If you plan to stay in the house for at least a few years beyond your break-even point, you should probably refinance at this time. The process of shopping for a new home mortgage to refinance an existing mortgage is exactly the same as the process you went through to obtain your first mortgage.