One of my financial New Year’s resolutions this year is to refinance my home while mortgage interest rates are relatively low.

Refinancing, though, is not to be taken lately. You will have to go through a credit check, pay fees and have your home appraised.

In some cases, especially if you can’t get an interest rate that is more than 1% lower than what you already have, it may not be worth it. before you decide to refinance. Ask yourself these 3 questions:

1. How much will I save?

This is your first consideration. You can use a mortgage broker or an online calculator to help you run numbers and estimate how much money you could be saving. This is something that should be done with monthly figures as well as long-time figures. See how much you will be saving on your mortgage payment each month if you refinance. Think about what you could do with that money (pay down debt, save up for a vacation, invest for the future, etc.) and decide if it is a reasonable amount. Also consider how much you will be saving in interest charges over the life of the loan. There are few things as satisfying as realizing that you won’t be flushing thousands down the toilet in interest.

2. Can I pay off my mortgage quicker?

Some people refinance so that they can pay off their mortgages quicker. This can be a benefit, since you can get a lower interest rate on top of paying off the loan at a faster rate. This can save you an amazing amount of money over the life of the loan. However, you need to weigh this advantage against the fact that you will possibly need to make a higher monthly payment in order for this to happen. Is the trade off worth it to you?

Others decide to refinance for the longest period of time possible in order to avoid getting locked into a higher monthly payment, should something unexpected happen down the road. Then they make a plan to pay extra toward the principal in order to get done with the mortgage faster and save overall.

3. How much will refinancing cost me?

This is your final consideration. Your fees for refinancing can run into the thousands, by the time you pay for loan origination, attorney fees, taxes, title insurance, appraisal, credit check and myriad other charges. Even a “no fee” loan may come with extra charges. Check to see how much the refinance will cost, and remember that if you don’t pay these costs out of pocket, they will be added to your loan and you will pay interest on them. Tote up the costs, and see whether you really will save money by refinancing. If it looks like you won’t, you might just hold off and see if you can pay off your mortgage early.

Final Thoughts

Think about why you are refinancing. If you are refinancing just to cash out and pay off unsecured debt, you might want to reconsider. Securing your credit cards with your home can backfire horribly on you if you run into trouble and lose the house as a result. If you are refinancing primarily to save money, make sure that you really will be ahead when you refinance. If you want to pay of your loan faster, double check to see that you can handle the new mortgage payments, and that you have the ability to make up for it should something untoward happen.

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