Know Your Situation

• The most important part of going through an effective refinance includes knowing your current situation. Spending thousands of dollars simply to save $25 per month doesn't make a lot of sense if you're only going to live in the house for three years. Many homeowners assume because they don't have to write a check for the closing costs that any monthly payment savings is better than their current payment. Forecast how long you will live in the home, and know what your current interest rate and principal and interest payments are.
  
  

Watch the Interest Rates

• The Internet and newspapers make watching interest rates easier today than ever. Many lenders publish their interest rates on their websites, and newspapers often publish interest rates in the real estate sections of their paper. While it is difficult to time the absolute bottom of an interest rate cycle, it is significantly easier to know if interest rates are low enough to make refinancing profitable. Interest rates tend to stay somewhat stable over a course of weeks or months. It is rare that an interest rate will rise by more than 1 or 2 percent over a given month.
  
  

Obtain Several Quotes

• Every lender offers a different combination of interest rate and closing costs. Some lenders offer higher closing costs and lower interest rates, while others may offer the exact opposite. Speaking to several lenders provides you the opportunity to find a lower interest rate and lower closing costs. They might not be from the same lender, but remember lenders often negotiate interest rates and closing costs. Ideally, you use the quotes to negotiate a low interest rate and low closing costs from your preferred lender.
  
  

Calculate Your Savings

• Calculating the savings a refinance will provide requires completing a formula. Subtract the new payment from your current payment and divide the total closing costs by the difference. For example, if your new loan will save you $150 a month and your closing costs are $3,000, it will take 20 months to repay the closing costs. If you think you will continue to own the home for five years, then you will have an additional 40 months where you will save $150. You must then decide if the process is worth saving a net $6,000 over five years.
  
  

Refinance Process

• Apply with the mortgage lender who provides you with the best overall savings and work closely with your lender through the refinance process. Depending upon how busy the mortgage lender and the mortgage investor are, the closing may take as little as a couple of weeks or as long as a couple of months to complete.