When Does It Make Sense To Refinance Your Home? by Peter Stabler

Borrowers who may qualify for the current low rate mortgage offers have a big decision to make when it comes to refinancing their home. Maybe you know friends or neighbors who have decided to take advantage of these new low offers and are saving hundreds of dollars each month. While refinancing a home can be a great way to save money, the decision should be made after many factors have been taken into consideration. Each person has a unique financial situation and each loan offer has different rates and fees that must be weighed before signing on the bottom line.

How Long Do You Plan On Staying In Your Home?- This is a major factor when considering a refinance. If you intend on moving within the next five years you will likely save little if any money by refinancing. When you consider the application fee, closing costs and various other charges associated with refinancing, people who intend on staying in their home for several years will make out better than those who may move in a few years.

How Much Money Will You Save Over The Life Of Your Loan?- Before you extend the length of your mortgage you need to find out how much money you will save over the life of your loan. For some people refinancing can save them thousands of dollars while others may see a much smaller savings. If your monthly payment isn't going to be much less than you currently pay, consider other ways to save money. For a small monthly savings, it doesn't make much sense to extend your loan and incur the costs of refinancing.

Review the following examples to better understand if home refinancing is the best choice for you.

Example 1- The Smith family has a thirty year $200,000 mortgage with an interest rate of seven percent. Their current mortgage payment is $1,330 and they intend on living in their home for at least ten more years. The Smiths have been approved for a re-finance at a 5.2% fixed rate which will save them over $200 per month. Before moving forward they find out the closing costs on the loan will be $3,200. Dividing the closing costs by the monthly savings, the discover they would recoup their refinance money in fourteen months.

Example 2- The Jones family lives next door to the Smiths and after hearing out their savings when refinancing decide to look into it for themselves. They also have a $200,000 mortgage with an interest rate of 6% and their current monthly mortgage payment is $1,199. Their refinance option would include a 5.4% fixed interest rate for thirty years. Their monthly saving would be less than the Smiths at $76 per month. Closing costs on the Jones' loan is higher than their neighbors at $3,800. Following the same calculation used for the Smiths', it would take fifty months for the Jones' to recoup the the cost of refinancing.

The above examples show you that what may work for your neighbors won't always work out for your family. Before you refinance, take the time to work through the numbers and ensure you really are going to money over the course of your loan.

About the Author

Paul Stabler, Associate Editor for CreditCardFlyers.com

CreditCardFlyers.com is known for it's leading resources of credit card offers and balance transfer credit cards. We provide valuable information in one convenient place so consumers can easily search and compare balance transfersand apply instantly online.