How to Compare Mortgage Refinancing
- 1). Write down your refinancing goals. You can refinance to simply lower your interest rate or payment term. You can also use your refinance to access the equity in your home for other purposes. It's important to know why you want to refinance. It will help you know if the cost of the refinance is worth the cost of refinancing.
- 2). Resist taking the first quote out of fear interest rates will increase. Many refinances are done during periods of low interest rates. While interest rates do change daily, they usually do not dramatically jump up or fall over a short period of time. Obtaining several quotes, helps ensure you do not become victim to predatory lending
- 3). Call at least three mortgage lenders. Your local bank probably has a mortgage department. Most communities have mortgage brokers as well. You can find companies on the Internet, and you can always call your current company for a quote. Ensure your quotes are in writing on a good faith estimate.
- 4). Subtract the quoted principal and interest payment from your current principal and interest payment. Ensure you do not include the payments for taxes or insurance when you make these calculations. The difference between the two payments is your monthly savings. Each loan quote will probably be slightly different depending on the quoted loan amount, interest rate and loan term.
- 5). Divide the costs of the loan by the monthly savings. This determines the time it will take to pay back the cost of the refinance. Estimate how long you intend to own the home. If you intend to own the home for 10 years, this will make your decision different than if you intend to own the home for only three or four years. If loan A saves you $166 each month and costs $4,000 in settlement fees, it will take over 24 months before the cost of the refinance is recouped. If loan B saves you $200 a month and has settlement fees of $7,000, it will take 35 months to pay back the refinance. If you are going to own the home for five years, then you will save $5,976 over the five years with loan A. Loan B will save you $5,000. If you are going to own the home for 10 years, loan A saves you 15,936 and loan B saves you $17,000 over the 10 years.
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