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Refinancing: Shopping and Comparing Mortgage Costs and Features

Posted by  on Jul 08, 2010
 

Refinancing your mortgage at current low mortgage rates can lower monthly payments, stabilize fluctuating payment amounts, and may even provide additional cash for debt consolidation or home improvement projects. Using free mortgage calculator tools is helpful for comparing mortgage refinance quotes and researching various refinance scenarios. Getting a great refinance deal depends on more than comparing rates; consider your overall financial picture, plans, and goals when matching refinancing options with your needs and priorities.

How Much Can You Afford? Estimate Your Maximum Refinance Mortgage Amount

Actual costs can vary according to fluctuations in mortgage rates, closing costs, credit scores, and other factors influencing your refinance transaction. Use an affordability calculator to establish how much you can afford to refinance based on a targeted monthly principle and interest (P&I) payment, current mortgage rates, and your desired repayment period.

Reasons for Refinancing: Evaluating Mortgage Loan Features and Benefits

In addition to reducing mortgage rates and payments, reasons for refinancing may include:

  • Converting an adjustable rate mortgage to a fixed rate mortgage,
  • Getting additional cash for consolidating consumer debt or making home improvements, or
  • Reducing your repayment term for paying off your mortgage faster

When comparing refinance quotes, it can be tempting to focus on estimated savings based on mortgage rates alone, but other factors including closing costs, repayment term, and lender fees are also important considerations.

Refinancing: Considering Closing Costs

Depending on your reasons for refinancing, mortgage closing costs can make or break a refinancing deal. Using a closing costs calculator can help you estimate ahead of time what refinancing your mortgage may cost. This cost negatively impacts potential savings realized from lowering mortgage rates. Use a mortgage closing costs calculator for estimating closing costs and the break-even period. Understanding how long it takes to break even on closing costs is useful for evaluating refinance mortgage quotes.

Comparing Refinance Costs: The Role of APR

The annual percentage rate, or APR, must be clearly stated on mortgage quotes. The lower the APR, the less costly the mortgage. The APR differs from refinance rates in that it includes all financing costs associated with a mortgage. When comparing mortgage refinance quotes, look at the mortgage rate and APR for each quote. If the refinance rates and amounts are the same, but APRs differ, please review and compare closing costs. Some closing costs may be negotiable, it's worthwhile to ask.

Reducing Refinance Mortgage Term: A Good Idea?

In addition to traditional 30 year mortgages, you can now refinance to a 15 or 20 year term. Although it's possible to save thousands of dollars with a shorter repayment term, it's wise to consider the "what ifs" that can occur. If you're certain of your ability to make a larger monthly payment, refinancing to a shorter repayment term can help you pay off your mortgage faster.You can also use an early payoff calculator for determining how much you'll need to add to your current mortgage payment to pay off your mortgage within a specified time.

Refinancing for Debt Consolidation: No Brainer or Budget Buster?

Although refinancing for enough extra cash to pay off high APR consumer debt may seem like a "no brainer," your success with this type of mortgage refinance can depend on your commitment to avoid consumer debt after refinancing. Otherwise, you risk owing more on your mortgage and increasing consumer debt. Unless your debt is large and its interest rate is high, refinancing for debt consolidation may not be worth it. Refinancing extends the repayment term of the debt you're consolidating and you'll also pay closing costs. Using a closing cost calculator can help with estimating how long it takes to break even on closing costs before realizing savings through a debt consolidation refinance.

As with all major financial decisions, consulting a professional accountant or financial advisor can help determine how or if refinancing your mortgage can provide benefits based on individual circumstances.

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