Three Rules of Thumb for Mortgage Refinancing

What do you want of Mortgage Interest Rates Today ?.

Rule 1: Don't Ignore Total Interest Costs

Mortgage Interest Rates Today

You genuinely want to use refinancing as a way to sell out the total interest cost you pay. While that sounds uncomplicated in principle, it is sometimes difficult to do. The interest costs you pay are a function of the interest rate, the loan balance, and the loan term period.

When population refinance, they tend to focus solely on the loan interest rate. But they often don't pay as much attentiveness to the loan term or the loan balance.

When you use refinancing--even refinancing at a lower interest rate--to increase your borrowing or to increase the time over which you borrow, you often aren't recovery money.

Rule 2: Trade costly Money for Cheap Money

For refinancing to make economic sense, however, you do need to swap higher interest rate debt for lower interest rate debt. This calculation, however, is tricky. To make an apples-to-apples comparison, you must look at the every year percentage rate that will be expensed on your new loan--this is the best part of the new loan's interest rate cost--and then collate this to the loan interest rate on your old loan.

You don't want to collate interest rates on the two loans nor do you want to collate every year percentage rates on the two loans. Again, just to make this perfectly clear: You want to collate the loan interest rate on the old loan to the every year percentage rate on the new loan.

When the every year percentage rate on the new loan is lower than the loan interest rate on the old loan, then you are truly paying a lower interest rate.

Comparing every year percentage rates with loan interest rates seems confusing at first. But note that you would pay only interest on your old or current loan, so that's all you need to look at in terms of its costs. With a new loan, however, you would pay both interest and any origination or conclusion cost fees. The every year percentage rate wraps the interest rate charges and setup charges, origination charges, and conclusion cost fees into one interest rate-like number.

Rule 3: Don't Lengthen the reimbursement Period

Be rigorous that you don't increase the distance of time you borrow by continually refinancing. For example, one coarse rule of thumb states that every time interest rates drop by two percentage points, you should refinance your mortgage. However, there have been times in up-to-date history when following this rule would have had you refinancing your mortgage every few years. This could mean that you would never get your mortgage paid off. If you refinanced every few years, you would suddenly find yourself still 30 years away from having your mortgage paid.