refinance second mortgages

Making A Decision To Refinance Your Mortgage

Before deciding if and when to refinance, you should carefully consider your reasons for refinancing, the costs involved, and the type of loan and term that best meet your needs, as well as other factors.

If you have a clear understanding of your refinancing objectives, have determined what the best mortgage type, terms, and rates are for your situation, and know what your costs to refinance the mortgage loan will be, you should calculate how long it will take you to recover your costs. In some instances, unless you plan to remain in your home for several years, you may see little or no savings. Therefore, you may choose not to refinance, or you may want to consider other options in the loan type, terms, and rate.

If you are refinancing to lower your interest rate and monthly mortgage payment, the worksheet on page 26 will help you determine how long it will take to recover your costs to refinance. You can also use a variety of online calculators to compare refinancing
costs, terms, and the time needed to recoup your up-front loan expenses.

Divide your total costs to refinance by your total monthly savings. You will arrive at the approximate number of months it will take you to recover your up-front costs through savings on the lower payment.If this length of time is longer than you plan to remain in your home, it may not make sense for you to consider refinancing.

Not every homeowner refinances just to lower the interest rate or monthly payment. For example, you may want to refinance to get a shorter term loan so you can pay off the mortgage before you retire, or you may want to convert your mortgage from an ARM to a fixed-rate loan. Because these refinances can result in a lower interest rate, but
probably won’t result in a lower monthly payment, there’s no simple
formula for determining when it makes sense to refinance.

Following are some of the things you need to consider if you want to refinance:

• How long do you plan to remain in your home?
• How many years remain on your existing mortgage loan?
• What costs are involved in the refinancing?
• How much will you save in total interest costs over the life of the loan if you choose a shorter term mortgage?
• How much of your tax advantage for mortgage interest deductions will you lose if you choose a shorter term mortgage?
• Would you be better off choosing a longer term loan with lower payments, but making extra principal payments now and then so that you achieve the same result without being obligated to make a higher payment every month?
• What value do you place on the “peace of mind” you might get from knowing that your payment for a fixed-rate loan won’t change if interest rates go up?