Mortgage Rates - The Benefits of Refinancing

Posted by Nick Niesen on October 29th, 2010

So you've lived in your home for some time now and have been content mailing off your mortgage payment every month. Yet when you turn on the nightly news you see that mortgage rates are 1% lower than what you locked into 10 or 15 years ago and realize quickly that you may be paying more money than you have to in interest rates on your mortgage. For millions of people every year, refinancing is an option they take to give their mortgage a "health check" of sorts and to help them lock in lower rates or take advantage of increased property values to make some improvements to their homes.

Nobody likes to pay more than their neighbor did for something - especially their house! Refinancing is an activity that is as much a part of the mortgage process nowadays as taking out a mortgage is to buy a new home. A smart homeowner knows that interest rates will rise and fall and that by keeping track of where they are currently they can save a lot of money over the life of their mortgage note by locking in a lower mortgage rate now, even if it means paying a little money up front. Refinancing helps millions of homeowners get lower rates on their mortgages by paying off their old mortgage and writing a new one.

Of course, as with any financial transaction, you should carefully review all the costs associated with refinancing and the potential benefits versus the risks. Typically, if you only have a few years left on your mortgage note then refinancing is not for you - you simply won't save enough in interest to make up for the fees you have to pay to rewrite your mortgage. The best time to refinancing, according to some experts, is when at least 40% of your monthly mortgage payment is still going towards interest fees.

If you do decide to refinance it is important to remember all the tricks we've talked about before when shopping around for a mortgage. Get plenty of competitive bids, keep a close eye on the fees, and be sure to read and understand the risks involved.

Another reason that many homeowners refinance their mortgages is to take advantage of increased property values as to "cash out" on some of the equity. Say you have a child who is ready for college and you need a way to pay for it. Your home, with cost $100,000 twenty years ago when you took out your 30-year mortgage may now be worth $200,000. By refinancing you can in essence write yourself a check to pay for home repairs or other needs and get the money easier at a better rate then taking out a 2nd mortgage.

For those who use it wisely, refinancing can be one of the best financial tools you have. Not only does it hold the potential to help you save thousands of dollars in interest charges by getting you a lower rate, but it also lets you take advantage of increased property values to help pay for other necessary items that come up in life. Yet another reason why owning a home is truly one of the best financial moves you will ever make.