The most important thing that folks should consider when refinancing their home, but often don’t, is what the total cost of the new mortgage loan will be as compared to the old mortgage loan. Sure the monthly payments may be lower, but what about the total cost. Many lenders and mortgage brokers will often glamorize the lower interest rate and fail to mention there will be an increase in the total mortgage cost. Sure, the total cost of the loan can be found on the settlement documents, but at the time of signing, do you think you’ll have a copy of your old loan documentation to use for comparison? The point here is to be sure you compare your old apples to the new apples – compare the total costs of the loans. Most of us want a lower interest rate at no additional cost; do not be blinded by the better interest rate alone.

Getting cash out of your refi will often bump up the interest rate on the new mortgage because most lenders are of the opinion that borrowers who need cash may have some financial distress and therefore are considered to be a higher risk and given a higher interest rate. However, if the new interest rate is low enough that a slight bump would still be lower than the interest rate on the original mortgage, the slight bump could be considered inconsequential.

Another item to consider when refinancing is the additional settlement costs for the new loan, which may be added to the total loan cost unless these expenses are paid in cash. By spreading these expenses out over the total length of the new loan, a break-even period can be determined where the addition of this extra cost becomes cost effective. For those individuals who are not planning on carrying a mortgage for a long period of time, this break-even date is essential information when considering a refi.

Again, some more great unbiased calculators for determining the cost benefits (if any) of a mortgage refinance can be found on Jack Guttentag’s website by following this link: Mortgage Refinancing Head a third of the way down the web page and look for the calculators in the 3 range.

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