| By :
Paul Wise
When you begin to see ads for mortgages at a considerable discount from the interest rate you pay it may be a sign to refinance. When you refinance your mortgage it can save you a large sum of money but there are many pitfalls to watch out for. Besides getting a loan with a fixed rate so it does not go up when you least expect it and besides the "fine print" such as fees or paying back early there is the refinance mortgage closing costs. Mortgage refinance closing costs can be very expensive usually going into the thousands of dollars. So why is it worth it to refinance a mortgage? Because at lower mortgage interest rates you can save a lot on your monthly payment while still paying back the debt within the same time frame as your old mortgage. In order to see if refinancing is right for you, you should find out how much you are paying per month for your interest rate as of now and then find out how much the monthly payments will be for the new rate, add the closing costs and other fees, and see how many months it will take to catch up. Here are some examples: Let's say you pay 1500 a month right now, and with the new mortgage refinance you can pay $1250 but there is a $3000 closing cost and another $500 in fees. The difference between your payments now and with the new mortgage is 250 a month. We add up the fees and the mortgage refinance closing costs ($3500) and divide it by 250. It will take 14 months to break even. If you will have this mortgage much longer then that it is a great deal to refinance. Let's say you pay $1500 now, but the new mortgage interest rates are just slightly higher so you pay $1450 a month. With all the other variables staying the same you now must divide $3500 by 50 and not 250. It will take 5 times as long to break even - nearly 6 years! If you won't keep the house that long, or if you will finish paying your mortgage by then it's not worth it. If your mortgage will last another long time, though, after the first 6 years you will save $1100 a year which is very much worth it. So do plenty of research on Mortgage Refinance Closing Costs before making a decision, it may save you more money than you thought.
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