There was a great article in USA Today exploring refinancing in today’s market.  In the past, homeowners could easily refinance and even get cash out because they had equity in their homes.  In today’s market, many homeowners are underwater – meaning they owe more than their home is worth.  For homeowners that are in this situation, refinancing is not impossible, but it generally requires that some money is brought to the table at closing.

Bob Walters, chief economist for Quicken Loans, explains in the article:

“Suppose, for example, that you bought a home several years ago, when fixed mortgage rates were 6%. You paid $200,000 and put $10,000 down. You currently owe $180,000, but your home’s value has declined to $160,000. To refinance to a lower rate and avoid private mortgage insurance, you’d probably need to put in $25,000 to $30,000.”

However, cash-in refinancing can still pay off in the end, even if you can’t afford to avoid private mortgage insurance.  If you don’t already have 20% toward the principal or have enough cash on hand to hit that number at closing, you can pay only the closing costs and still lower your interest rate.  You’d still have to pay PMI, but chances are if you don’t have 20% down, you are paying this already anyway.  Refinancing and lowering your interest to record low mortgage rates could save you money in the end.

The article stresses the importance of figuring out if refinancing makes sense for your situation.  When you talk to your Home Loan Expert, discuss how long you plan on being in your home.  You’ll need to calculate how long it will take for you to recoup the initial investment of refinancing.  If you plan on being in your home for at least 5 years, refinancing to a record low mortgage rate could potentially pay off.