How to Know When You Should Refinance Your Home

Mortgage interest rates certainly aren't as low as the hay-days of 5% mortgages, but homeowners with good credit can still qualify for historically low-interest rates. 6.2% doesn't seem so bad when you consider at periods in the 70's, some people were paying a 19% interest rate on their mortgages! Even though rates aren't at all time lows, there still are good reasons to refinance in many situations

Does It Make Sense to Refinance? If you can eliminate at least one-half point off your current interest rate, it's generally a good idea to refinance. Anything less than that, and it's not really worth putting in the effort. If you're planning on staying in your home for less than five years, you also need to calculate whether or not you'll pay more in closing costs than you save in interest.

What kind of loan should I get? Always search for "zero cost" mortgage rates, which means you do not pay any closing costs. By only looking at zero cost mortgages, you are giving yourself a perfectly clear point of comparison between your existing mortgage and what you can get on the open market, simplifying the process greatly. With a zero cost mortgage, you'll pay a bit higher interest rate, but you won't pay any of the closing fees.

How do you find good interest rates? Not all mortgage companies are the same when it comes to the interest rate that you'll be able receive. Your best bet is to head on over to bankrate.com, select the type of mortgage you're interested and look for the lowest rate. Make sure the mortgage company is on the up and up, and go for it.

What about points? A point is equivalent to 1% of the total amount of money that you borrower. The idea is that if you pay a point up front, the lender will give you a slightly lower rate, but more often than not people don't keep their mortgages long enough for discount points to pay off.

Should I roll over my other debts into my mortgage? A lot of people refinancing will receive offers to roll over their other debts onto their mortgage, or take additional cash out along with their mortgage. Generally this is a bad idea because it will likely increase the interest rate that you're paying. In addition, if you have an over-spending habit and just clear the balance of your credit cards, you're likely to charge them back up again, and next time you won't have the option of rolling the debt into your mortgage.

What else do I need? Always be sure to get a good faith estimate. This is a listing of all of the fees and costs that you'll be paying along with an estimation of the closing costs and estimated monthly payment. This way you won't be hit with any surprises when the first payment comes.