When Should I Refinance My Mortgage?12/15/2016Typically, when current mortgage rates are lower than your existing mortgage rate and you had your loan for over a year you will want to think about refinancing your mortgage. Factors you will need to consider are the amount of equity you have in your home, the mortgage balance and the difference between your existing rate and payment as well as the current interest rate in the market. As to the why ... well, rate-and-term refinancing can save you money, allowing you to refinance the remaining balance of your mortgage for a lower interest rate and a more financially agreeable repayment term. Or you can choose cash-out refinancing, whereby you’d take out a new mortgage for more than you currently owe and either take the difference in cash or use it to pay off debt. A mortgage refinancing can also help you free up cash in the short term by allowing you to skip a payment or two in the refinancing process. Many people also refinance to substitute a fixed-rate loan for their old adjustable-rate mortgage, settle divorces, or eliminate mortgage insurance or reduce the term of the mortgage. Before you take the plunge and refinance, though, make sure you check out current interest rates. Also, mind your credit score; a good credit rating can help save you thousands of dollars on a new mortgage. That’s pretty significant, too, considering that thousands of dollars is what you can easily pay in mortgage closing costs. Last, but perhaps most important, figure out your “break-even point.” That’s the time necessary for your mortgage refinance to pay for itself. If, for example, it would take you 30 months of lower payments to repay the closing costs and you don’t plan on staying in your house that long, it’s probably a good idea to stick with your current mortgage and not refinance. If you decide to go with cash-out refinancing, be careful. Using it to pay off credit-card debt will certainly reduce the interest rate on your card. But the balance you transferred from the card to your mortgage may have you ultimately paying thousands more in interest since you’re now taking up to 30 years to pay off that balance. Think twice also about converting unsecured debt into secured debt. Missing a credit-card payment can result in harassing calls from debt collectors, not to mention a lower credit score. Missing mortgage payments can result in the loss of your home to foreclosure. Remember that home equity debt added to your refinanced mortgage is secured debt. In the final analysis, refinancing your mortgage can be very beneficial financially and is sometimes even necessary, but it is important that you think it through carefully and consider all the pros and cons before moving forward.