The median household that does not refinance could lose out on an average of $11,500, according to the National Bureau of Economic Research. Besides the obvious lure of reducing the cost of your monthly payments, some other factors to keep in mind when refinancing are:
1) The total cost of refinancing
2) When you will begin to save money each month
3) The length of the new mortgage term
4) The new mortgage payment
5) What to do with the monthly savings
To find out how many months it will take to pay off your refinanced loan, take the total cost of your refinance and divide it by the monthly savings after you refinance. Using a refinance calculator like the one at HSH.com can help you determine the length of time it will take before you can start to see a tangible savings.
Are you going to take a shorter or a longer term on your refinance? Figure out how many years you can cut from your mortgage term by making your “old” payment on your newly refinanced mortgage. If your “old” mortgage has 25 years remaining, and refinancing at current rates lowers your monthly payment by $400 each month, then apply your old cost to your new monthly payment (i.e., prepay your mortgage an extra $400 per month) to see how soon your mortgage is paid off. By paying an extra $400 each month, you could likely pay off your mortgage in fewer than 25 years. This could end up saving you thousands of dollars, at least.
source: smarterlifestyles.com
