What's the main reason you have for the refinancing? For most people, it's a lower
rate. Getting cash out of the house that has increased in value runs a close second.
Have you thought about reducing the mortgage
term? A 15-year mortgage builds
equity rapidly, but even with a lower rate your monthly payment will rise. Test out
the various scenarios on a mortgage calculator to see what might work for you.
here for refinancing calculator.
Are you well into your mortgage, say 10 years or more?
Think carefully if you
really want to start over again with another 30-year loan. There are actual 10-
year mortgages available if you ask.
With a refinance, another question is whether to pay points
to lower the interest
rate. Since each point equals 1 percent of the mortgage amount, they add up
quickly. And you can't deduct their cost all at once on your federal tax return;
they must be spread over the life of the loan..
Sometimes it makes sense: Nevertheless, it
can make sense in some cases to
pay points to get just what you want.
For example, suppose you got a 30-year loan early last year
when rates were
let's say, 8.3 percent. On a mortgage of $225,000, that would mean a monthly
payment of about $1700 a month. Today you could replace that mortgage without paying any
points and reduce your payments to $1500, a tidy savings.