Refinancing a mortgage can save you money, but make sure you carefully examine and calculate all potential costs and savings before you sign on the dotted line. When you refinance, you apply for a new mortgage to replace the old one. Borrowers typically refinance to obtain a lower interest rate or change the term on the original loan. Term is the length of time before the loan is paid (such as 15 or 30 years). The Lender will examine your credit and your home will undergo the same appraisal process as when you purchased your house and applied for the original mortgage. It is likely that the appraised value has changed since the time your original loan was established. The lender also will review your credit report and credit score, as well as request a title report on the house to check if there is a second mortgage or a lien on the property. If approved for the new mortgage, you may go through the same process you did when you bought the house, but there is often less paperwork with a refinance. Your original mortgage (and any additional ones on the property) will be paid off by the refinance. You will have to pay appraisal fees, documentation preparation fees, title documentation fees, lawyer fees, lender fees and points (if applicable) like you did the first time you obtained a mortgage for the home.
Most homeowners who refinance choose to do so because interest rates have decreased significantly compared to the current mortgage. If you are debating whether to refinance, first compute the cost difference between the old mortgage rate and the refinance interest rate through the term of the loan. Then, compute the cost of the fees and expenses incurred by applying for and obtaining the new mortgage. Do not forget to tally any early pay off penalty fees. Lastly, determine how long you intend to keep the property. If the interest rate for your original loan is 7.5 percent and the rates have now dropped to 5 percent, a refinance could add up to tens of thousands of dollars by the time you sell the house. If the fees to refinance will only cost $1000, for example, it would be worth it. If you plan to sell in two years, though, it may not be worth the cost of the refinance.
The refinance of a mortgage can lower your monthly mortgage payments, making it easier to make those payments on time. You can sustain your good credit, because your monthly payments will be more manageable and more likely to be paid in full. Before jumping into any refinance, do the calculations to see if the savings over the time you plan to hold the mortgage will be greater than the costs of the refinance.

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