What to Consider When Refinancing: Net Savings

One of the factors that you have to keep in mind when it comes to home mortgage refinancing is the net savings that you will be able to enjoy through home mortgage refinancing. For most people, the net savings that you will be able to obtain through home mortgage refinancing is the primary consideration when a person is considering home mortgage refinancing.

Reducing Monthly Payments

If you are considering refinancing your home to save money on house payments, you are either trying to reduce your monthly payments by lowering your interest rate or you’re trying to avoid a higher one when the initial fixed rate ARM period expires. In the end, you will be balancing the new payments plus the refinancing costs against the old payments.

Consider the Savings Accurately

In order to figure how a refinance will benefit you, you must work out your new costs accurately. Your primary cost will be points, which is a fee equal to 1% of your loan amount. Also called a loan origination fee, this pays the lender for processing your application and for any time involved. You will also have an application fee, appraisal fee, and possibly attorney’s fees for the lawyers the lender will hire to help with the legal aspects of your loan.

Consider All Fees and Costs

Don’t forget the other miscellaneous fees your lender may charge for: title searches and insurance, inspections, mortgage insurance, surveys, and other small items. When considering your refinancing options, make sure you know all these fees before applying for your loan. Some lenders are now offering no fee or low fee refinancing loans, so check and see if lenders in your area have that option available—just make sure they don’t make up for it all with a high interest rate.

Understand the Total Amount of Loan Associated Fees -- All of Them

Except for the low and no cost loans, expect to pay from three to six percent of the loan amount for your fees. Although some states outlaw certain fees, some of these services and fees are necessary. Make sure you know which are required and which are not. Additionally, if you use the same lender to refinance as you did for your original loan, some of this research may be unnecessary, or they may be willing to waive the charges.

Consider the Pros and Cons of Home Mortgage Refinancing

When all your research is done and you think you may benefit from refinancing, it’s time to check your tax benefits. Remember that if you are paying less interest, you will have less of a deduction. It usually doesn’t make that much difference, but in the case of large loans it could be substantial. If you want as precise a calculation as possible, try the tax calculator at www.dinkytown.net. This calculator allows you to input everything you will need to get an accurate deduction based on some detailed information.

In essence, your refinancing savings will amount to your savings over time minus your costs. Make sure the savings will be worth the fees and lost tax deductions. If you have any doubts, contact the appropriate professionals or attorneys for good advice on how—or if—you should proceed.