Before you jump on the refinance bandwagon, ask yourself and important question: How long do you plan on staying in this house? You'll need to know what the real savings will be once you back out points and fees (and don't forget your time). Look at your monthly mortgage decrease versus the amount of months you intend on staying in the house. If you plan to sell the house before all your cost are recouped,you may not even want ot pursue a re-fi.
Before pursuing a re-finance:
1) Figure out the break-even point. Divide the cost of the refinance by your monthly saving. Don't forget to figure in points and fees (also called "origination fees" or discount fees"). Fees are the costs you pay to a lender or broker when you close the deal. One point is equal to one percent of the loan's value.
2) Determine if the total up-front cost, given the number of months you'll need to remain in the house to save any money, coincides with your plans.
3) Don't select a new mortgage based solely on annual percentage rate. Look at whether the interest rate is fixed or variable.
4) After your evaluation, if you do decide to go ahead and re-fi, shop around and ask questions, then see if a re-finance still makes sense.
5) Preform a detailed cost assessment of every mortgage you qualify for, and identify which offers the greatest financial benefits. Then read everything carefully.
Produced by:Scott Levitt