If you are looking to lower your monthly expenses, mortgage refinancing could give you just the right amount of financial breathing room you need. There are a number of reasons why homeowners refinance their mortgages: to lock in a lower fixed rate on an adjustable loan just prior to an interest rate reset, to tap into home equity to finance home improvements or a consumer loan payoff (a good income tax strategy) or to consolidate two mortgages into a single loan.
Mortgage refinancing is an excellent financial strategy provided you intend to remain in your current home for the long term. It takes close to two years to recover the closing costs associated with mortgage refinancing, so your money will not be well spent if you decide to sell your home within that time. Your true savings begin when the aggregate amount of your monthly savings equals the amount of your closing costs.
Your mortgage refinancing transaction progresses in the same order as the loan you took out when you first bought your home. You will also be responsible for the same type of closing costs: loan application fees, an update and review of the title to your home, the title insurance premium, home appraisal and document preparation fees, attorney fees, and the mortgage tax, recording and filing fees imposed by your county clerk, not to mention attorneys fees. Your lender will hire its own attorney for the transaction even if you do not, and it will pass the fees on to you. All these costs can either be paid up front or added onto the amount of your mortgage. Whichever option you choose, your true savings will not begin until you have paid yourself back the amount of your closing costs.
Also think about whether your purpose for mortgage refinancing is to lower your monthly payment by reducing interest or to raise your monthly payment in order to pay principal down faster. The first strategy has an immediate impact on your monthly expenses but will end up costing you more in interest over the long term; the second will pay your loan off sooner and cost less interest overall. Let your long term financial strategy be your guide.
Taking a lesson from the housing crisis of the late 2000s, it would be to your great advantage to read the small print before signing on the dotted line. Unscrupulous lenders seduced homeowners into taking on more debt than they could afford. Do not allow yourself to become one of them.

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