The Costs of Refinancing Your Mortgage

Refinancing your home can save you money each month by allowing you to consolidate some of your debt into one low-interest payment, or by lowering your interest rate or changing the term. You can also take cash out from the equity in your home. But what are the costs associated with refinancing your home? Is it worth it to refinance in the face of these costs?

When calculating the benefit to cost of a refinance you should figure the savings you will achieve by not having those high interest bearing accounts. Calculating the number of years and the amount of interest paid to these high interest accounts may help you decide if the costs of a refinance will benefit you in the long run.

Refinancing for debit consolation is one of the best ways to lower your monthly payments. Not only will your combined payment be lower, in must cases your loan will be tax deductible. Consult your tax professional for details.

Remember, though, that by consolidating revolving debt into your mortgage does not eliminate the debt. It simply adjusts it into a lower interest rate. If you adjust that debt into your home and pay only the minimum payment, quite often you'll end up paying much more money on that debt than you would have originally. If the short term debt relief is critical (i.e. you were struggling with your payments and absolutely had to save money to keep the bills paid) be very careful not to add up more debt to where you'll be sinking again. If the debt relief wasn't critical, the best thing you can do is take the money you save and apply that every month to your mortgage. You will be able to pay down your mortgage quickly and eliminate ALL of your debt at a much lower cost. This will usually save you money in the range of 5-6 digits and will cut many years off your mortgage payment.

Borrowers should determine how long it will take to pay off the costs associated with refinancing. For instance, if a borrower plans on selling their home in 2 years but it will take 3 years to recoup the cost of refinancing it may be wise not to refinance.