How to Evaluate a Refinancing Mortgage Offer to Find If it Is Worthwhile?
- 1). Compare the long-term cost of your current mortgage against mortgage terms offered by other lenders. The cost of your mortgage is largely determined by the amount of your refinancing loan, the interest rate and the length of the new mortgage. Refinancing is worthwhile if you obtain a lower interest rate or decrease the length of the mortgage. To Illustrate the impact of more financially favorable terms consider that a $200,000, 30-year fixed-rate mortgage financed at 6 percent costs $431,640 over the life of the loan. Refinancing at 5.5 percent for 15 years decreases the long-term cost of home ownership to $294,120.
- 2). Obtain a list of all refinancing fees charged by each lender. According to the Federal Reserve, refinancing fees vary among lenders and states, so obtain updated fee disclosures from each separate lender. A typical schedule of fees includes application and loan origination fees. These fees cover the cost of evaluating your credit report and, upon approval, preparing the loan paperwork, conducting a legal review and notary services.
- 3). Estimate your break-even point to determine how long you have to remain in your home to make back the cost of refinancing. Divide your total refinancing fees by the monthly savings you generate by refinancing your mortgage. The result is the number of months you must remain in your home, after refinancing, if you want to recuperate the expense of the refinance.