Mortgage Refinancing Basics - part 2

by LendingTree Editorial Staff

Is refinancing right for you?

If you're refinancing in order to pay less interest, you won't usually see the savings right away. That's because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:

1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings you'd get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.

2. 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.

3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of 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 a half a percentage point lower than your current one.

To learn more about mortgage refinancing and when it makes sense, visit http://www.lendingtree.com/cec/yourhome/yourmortgage/mortgage-refinance.asp

Copyright (c) LendingTree Editorial Staff

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