Goals

• The most common reason to refinance your mortgage is to get a lower interest rates. Mortgage rates fluctuate over time. If rates fall significantly lower than your original mortgage rate, you could potentially save a lot of money in interest through a refinance. Some homeowners refinance to stretch their remaining principal balance back to 30 years on a new mortgage. This effectively lowers your monthly payments by lengthening the payout time frame. Consolidating a first mortgage and a home equity loan into one new mortgage loan is another common goal.
  
  

Financial Benefits

• First-time home buyers are often surprised when they are presented with the total cost of financing the entirety of their mortgage loan. A typical home loan of $150,000 can incur $200,000 to $300,000 in total interest over the course of the loan repayment. Thus, lowering your interest rate tremendously impacts the total amount you pay over time. Homeowners who refinance to lower monthly payments sometimes do so for similar rates. This is often more because they are overwhelmed with monthly debt. Consolidating debt from a second mortgage is convenient and makes financial sense if you get the entire debt in one lower-rate loan.
  
  

Expenses

• Refinancing has an upfront cost similar to your original home loan. Along with basic lender fees and loan original charges, you often pay for an appraisal report, credit report, title report, title insurance and recording fee, according to the MyFICO website's refinance calculator. Another vital consideration is whether your existing mortgage has an early payment penalty. Home lenders often include these in mortgage contracts to prevent homeowners from exiting the mortgage too quickly, before the lender recoups the investment in the loan. This fee is usually thousands of dollars, enough to restrict your financial benefit of a refinance.
  
  

Decision Considerations

• You must weigh the investment in your refinance against the potential financial rewards. If the costs produce enough savings to justify the expense, it is generally a good move. By dividing your potential monthly interest savings into the up front costs, you can establish a break-even point. For example, if it takes 18 months to recover your investment through interest savings, the deciding factor is whether you are certain to live in the home for longer than 18 months. Timing is also important. You want to get the lowest rate possible, but multiple refinances is costly over time. Though it occasionally makes sense, one refinance per home is usually a good guideline to follow.