Refinancing your home mortgage is a way of replacing high-interest debt with a home loan that has a lower interest rate. But it can also be done in order to switch from a fixed rate mortgage to variable rate mortgage, or vice versa, or to eliminate a balloon loan payment. A cash-out refinancing is one that involves you paying off your home loan and borrowing an additional amount. The entire loan amount is secured by a mortgage lien on your home.
Refinancing your home mortgage generally makes sense if you can lower your monthly mortgage payment by enough to cover the related closing costs. Often, the break-even point for a refinance is two to three years into the loan. If you plan on selling your home within a year or so, refinancing may not make sense.
A Mortgage Loan closing costs include application, underwriting and loan-origination fees; mortgage points; title search and insurance; fees for related legal services; and costs to fund an escrow account. For home mortgage loans, closing costs generally range between 3 and 6 percent of the home purchase price. Please remember closing costs on any mortgage are not etched in stone and are up for negotiation. If you dont ask for what you want you certainly won't get it.
When you refinance, the decision should be profitable if you are able to pass the break even point. At the break even point, the savings you receive from refinancing will equal the cost.