Refinancing Mortgage Loans

As in most payment schemes refinancing schemes are also dressed up to look like the one golden solution for all your debt problems. After all, it seems only logical that the lower interest rates you have on your tab, the lesser money you will need to pay every month.

Dig deeper

You might be shocked, because refinancing actually costs money. You can’t expect banks to alter your mortgage loans for free. If you had to pay for borrowing fees through your former high interest rates in the past, shifting to a new payment scheme will mean high penalty and closing fees.

Try to look at these figures against your projected monthly savings with the new, lower interest rate. Look at your break even point and gauge if the refinancing expenses are worth it.

Break even period

Ideally, good refinancing deals will allow you to break even within the year. However, this doesn’t happen frequently, does it? A break even period of about three years is more realistic.

If your cost-benefit analysis tells you that breaking even will take more than three years, ditch the deal and look for another payment scheme.

Important

It costs you money to refinance, so as much as possible, try to stick to only one refinancing attempt. Once you think you’ve found a low rating payment scheme that will allow you to break even within 1 to 3 years, take it.

Try not to look at any more refinancing opportunities once you’ve refinanced for the first time. You only end up compounding the cost of your loans when you refinance more than once.