Interest rates on mortgages and loans are extremely low. These rates are the lowest they have been in decades. Along with this low interest rate comes enormous opportunity for real estate investors to reduce their principal and interest payments. Determining whether or not it makes sense to refinance is dependent on your unique situation, as well as if you can save enough money through the refinance to justify the expense. The analysis is a relatively straightforward, but you should understand the procedure so that you may benefit from renewing your mortgage.
The simplest way to determine whether or not to refinance your home is to look at your current mortgage and the respective time it will take to pay it off. Next compare this amount to what your payment will be after refinancing. If refinancing will reduce your payment and not add years or significant cost, then the refinancing your mortgage makes sense.
The simplest way to see if refinancing your mortgage makes sense from a quantitative point of view is to make a list that includes your payoff, your monthly payment, and the number of payments that have yet to be made. Multiply the number of left over payments by your current mortgage payment each month and record this number.
Now write down the refinance number, the new refinance term, and the approximate new mortgage payment. Simplify the calculations by using a spreadsheet, or online refinance calculator. Include your refinance costs as part of the total amount that you will be financing, bank fees, appraisal fees and transfer and escrow costs. Now repeat the same calculation as before, multiply the total number of payments by the monthly payment amount.
If you are not pulling out any equity during the refinance, the refinance makes the most common sense if you can lower your mortgage payment, and if the whole amount paid (number of payments multiplied by the monthly payment) after the refinance is lower than the entire amount to be due on your current note. If the mortgage payment is lower than your current payment, but the full amount is larger, you should decide if paying a reduced amount of monthly outweighs the greater amount you will need to shell out. The opposite decision is requisite if your payment increases but the overall amount due decreases. In both of these cases, caution must be used to be sure that you make the right decision.
One think to take into consideration as you go through the above analysis is that the current mortgage must equal the amount that you are refinancing. If the refinance amount exceeds the amount presently due on the mortgage then a much more complicated analysis is required. For this type of analysis, you will need a spread sheet with present value and amortization calculations. If you are not comfortable with these types of calculations, consult a financial adviser or accountant to assist with quantifying your decision.