While refinancing your mortgage isn’t quite like winning a lottery, in many cases refinancing can actually save you money or provide a source of ready cash. However, the answer to whether you can actually save money (or get money) by refinancing your mortgage isn’t straightforward and you need to take a long hard look at refinancing before making a move.

How can I gain by refinancing?
Here’s some of the ways refinancing could improve your personal finances.

• After refinancing at a lower rate, you could make lower monthly mortgage payments.
• Alternatively, you could build up equity in your home faster if you continue to make the same payments based on a lower mortgage rate.
• If you currently have an adjustable rate mortgage, you can lock into a fixed rate mortgage and gain the security of knowing your mortgage payments won’t change for the life of your mortgage.
• Or, if you’re happy with an adjustable mortgage structure, you could still gain by getting a new mortgage with a lower rate or possibly one that contains better protective features like better rate or payment caps.
• Finally refinancing your mortgage could allow you access to some of the equity you’ve built up in your home. It could be the source of funds for a renovation or addition to your home, pay some bills, buy a new car or finance a child’s education

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How can I figure if refinancing is an option for me?

• Determining if refinancing MIGHT be an option for you is primarily a function of two things, mortgage rates and how long you plan on staying in your home.
• Start by evaluating the interest rate you’re paying as opposed to prevailing mortgage rates. The rule of thumb is if today’s mortgage rates are 2 points lower than your existing mortgage, you should consider refinancing.
• You also want to be sure you’ll be staying in your home for at least at least five years so you’ll have time gain the savings from refinancing. Mortgage refinancing has some upfront costs, so if you plan on selling your home in less than five years you likely won’t be able to recoup them.

So there’s a downside, what kinds of costs go along with refinancing?

• The initial costs of refinancing a mortgage are similar to the costs for getting your original mortgage. You’re going to be looking at fees for legal services, title searches, surveys and property appraisals. While you may be able to minimize some of these fees by dealing with your original lender who already has all your original paper work thee are going to be fees.
• Your lender may also want ‘points’ (an upfront payment of a percentage of your property’s value), and this can be thousands of dollars. Bad news here, you can’t even deduct the total amount of the payment on this year’s income tax, since the IRS requires you to amortize the amount over the life of the mortgage.
• Also, your mortgage lender is under no legal obligation to renegotiate your existing mortgage, so getting out of your original mortgage may carry a penalty charge. Even if your existing mortgage has a prepayment option built into it, you could still be looking at a prepayment charge that could run into thousands of dollars.

How do I tell if refinancing is right for me?

As you can see there are a lot of potential costs before you gain any benefits and everyone’s situation is unique. If you feel mortgage refinancing COULD be a viable option for you, your next step should be to contact a mortgage advisor who can help you assess your personal situation. Refinancing isn’t for everyone and with your family’s security at stake your best option is to have a qualified professional do an analysis and advise you.

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