Why do people refinance mortgages?

You may want to refinance your mortgage for several reasons:

1. You can borrow at a lower interest rate, which will reduce your monthly payments and often the overall cost of the mortgage
2. You may want to consolidate outstanding debt — for example, by combining a first and second mortgage into a single new one
3. You may want to reduce the term of your loan, which while it may increase your monthly payment, will dramatically reduce your total cost.

To figure out whether you can save money by refinancing you need to figure out:

a) How much lower your monthly payments will be
b) What refinancing costs you must pay
c) How long you plan to stay in your home
d) How many years remain on your current mortgage

Your best bet is to tell the lender what you paid for the house, what you still owe, and how much you're paying each month. Have the lender itemize all theup-front expenses involved in the refinance and estimate your new payments. Then you can figure when you will break even.

For example, if you save $1,600 in mortgage payments each year by refinancing, but it costs you $4,800 to refinance, you'll have to stay put more than three years to realize any savings.