Does It Pay For Me To Refinance My House Now?

To refinance or not to refinance: that is the question. At least, that is the question that many homeowners should be asking themselves at least once every 2-3 years. You may only refinance your home once during the time you own the home. Or, it may make sense in some cases to refinance multiple times.

Essentially, refinancing just means taking out a new home loan with better loan terms while paying off your existing one (or sometimes also paying off your second mortgage as well).

There are several good reasons to refinance your house loan. With a refinance loan, depending upon your situation you can sometimes:

* reduce monthly payments

* pay less in interest costs each month and over the life of your loan

* pay off other, high-interest debt such as credit card debt

* pay off your loan faster by shortening the total repayment period

Given all of these potential benefits, if you are considering refinancing your house you are probably all ready to get started right away. After all, with all of this potentially good stuff, why wait - right? Well, yes and no. Whether or not you should move forward at this time with a refinance depends in part upon a number of factors.

Which factors should you be considering when looking into a mortgage refinance loan? Here are the big ones:

1. How long you plan to stay in your home.

2. Whether you can potentially qualify for a lower interest rate than you have on your existing mortgage loan.

3. Whether you have some equity in your home.

4. Whether or not you have time to shop for the best interest rate on a new loan.

5. The value of your home now versus how much you owe with your existing mortgage.

The rate for which you can qualify for a refinance loan is the same as the rate you would qualify for right now if you were taking out a new loan. Today's interest rates will vary by type of mortgage, as well as historical trends. Typical mortgage types include: 30-year fixed, 15-year fixed, 5 year ARM, and 1 year ARM.

For example, over the past few years, average rates for a 30-year fixed have ranged from about 4.25% to 6.725%. Of course, the rate your qualify for may vary given a number of factors, including your credit score and daily/weekly changes in average interest rates.

You can find more about current rates here.

Every mortgage refinance entails the homeowner having to pay closing costs. Closing costs are simply the various fees and charges that you pay the mortgage lender, the title company, attorneys and inspectors and others involved in the processing of the loan.

Of course, you will only want to refinance your home mortgage if you will stay in the house long enough to benefit from the interest savings that the refinance gives you. If closing costs were zero, then even if you were planning on moving in 6 months, the refinance would probably be worth it if you can qualify for a lower interest rate than you have now.

However, since the closing costs will always be greater than zero, you will need to figure out the break-even point. This just means: if you were to stay in the house for at least X months, then you should do the refinance. If not, you should wait until some future time when it may make more sense.

There are various ways to calculate the break-even point, some more accurate (and complex) than others. The most complex ways to do it take into account not only closing costs and monthly interest savings, but also items like tax savings, PMI cost savings, and opportunity cost of the money you spend in closing costs vs. that which you save in paying lower interest. However, for this type of calculation, sometimes simple is better. Click here to find a useful break-even formula that is easy to calculate.