Deciding Whether Refinancing is the Right Move for You

Are you trying to determine whether or not refinancing is the right option for you? Perhaps you are interested in making some improvements on your home before you put it up for sale or maybe you are even having second thoughts about putting it on the market. Before you decide to refinance that mortgage loan, there are several factors you need to consider in order to be certain it is the wisest financial move for you to make.

Considering the Costs

Although refinancing your home can potentially help you save a substantial amount of money in the long run, there are also many expenses involved with completing the refinancing process. Some of the things you may have to pay for before you can refinance your home include:

Survey fees
Attorney fees
Appraisal fees
Recording fees
Inspection fees
Application fees
Underwriting fees
Credit report costs
Title insurance fees
Loan origination fees
Points fees needed to reduce your interest rate
Insurance costs - both private mortgage insurance and potential increases in your current rates

Obviously, these expenses can add up rather quickly. Although you may not have to pay for all of these expenses, it is essential for you to add up all of the fees you will have to pay in order to make certain the amount of money you save in the long run will be worth the upfront costs.

Determining if it is Worth It

Once you have calculated the costs associated with refinancing your mortgage and you have determined how much money you will save each month by refinancing your loan, you can decide whether or not refinancing is worthwhile. Basically, it all comes down to looking at your short-term and long-term goals.

If you will be saving $100 per month and it will cost you $1000 to refinance your home, you will need to continue with the loan for another 10 months before you break even on your investment. Therefore, if you still plan on moving within the next year, refinancing your home probably would not be worthwhile in this scenario. If you plan to live in the same home for a few more years, however, the time and money you invest in refinancing will likely be worthwhile.

When making this determination, don't forget to factor in hidden costs as well. For example, getting a cheaper loan means receiving a smaller tax benefit on your state and federal taxes. In addition, your current mortgage loan may have a prepayment penalty that you will have to pay when refinancing your loan. These fees can sometimes be quite costly, with some being calculated based on the amount of interest you would have paid over the next six months on 80% of your balance.

The bottom line is that refinancing a mortgage loan can be a great way to save some money or to access some extra cash. Nonetheless, there is no guarantee that refinancing is the wisest financial move you can make. So, take some time to shop around and to crunch some numbers so you can be certain you are making the best move possible.

About the Author:
Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.byownermls.com/, a For Sale By Owner MLS service, the leading real estate search engine of homes for sale by owner (FSBO). For more information, please visit http://www.byownermls.com/.