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Probably every homeowner considers refinancing sometime during the life of their loan, or maybe you’ve considered it quite a few times.  The trick is, how do you know if it’s a good time to refinance?

Well, the equation is actually pretty simple to figuring out whether refinancing now is right for you.  First of all, mortgage rates are really low right now, but with the Fed pulling out of buying mortgage-backed securities there’s concern that rates will rise soon.  So if you want to be on the safe side – it’s better to refinance now than later to take advantage of the low mortgage rates.

The next thing to consider is how much longer you’re going to be in the house.  Because if you plan on moving in a couple of years – chances are you’re not going to save enough in lowered payments to make up for the cost of refinancing.

If you plan on staying in your home for quite awhile longer, you need a refinance calculator to figure out  how much you’re going to save.  Another scenario is if you need cash from your home, you can refinance and pull some of the equity you’ve already built back out.  A cash-out refinance is usually a much better option than charging up unsecured debt because the interest rate is soo much lower when it’s secured debt – like a mortgage.  For cash-out refinances be sure to use this calculator.

Assuming you’re just debating whether to refinance because you could lower your monthly payment, here’s the process you would go through.  You would first use a refinance calculator to figure out how much lower your payments are with your new interest rate.  Then, take the amount of savings you would get each month and multiply that by how many more months you think you’re going to stay in the home.  Is it over the price of closing on a refinance?  If so, you would probably benefit from this lower mortgage rate.  If not, it’s probably better to keep your existing loan.

The bottom line is that you want your savings to be higher than the cost of the refinance.  Of course the process for determining whether a refinance is right for you changes if you are considering a refinance to consolidate your debt or because you need money for a large expense.  For these two goals, the key is to determine whether it’s cheaper to borrow at a higher interest rate or to get a much lower interest rate but have to pay for closing costs.

Regardless of your situation, it’s important to utilize the correct refinance calculators to get a good estimate of what your savings and expenses will be.

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