Should I Refinance?

Refinancing your mortgage is an option you may want to consider, as doing so offers the possibility of lower monthly payments. Another plus of a mortgage refinance is the possibility of using your home's equity to pay off outstanding credit card debt – and you can still deduct mortgage interest at tax time.

1. Refinancing is all about the interest rate, so the first step in deciding if it's right for you is to scour Sunday newspapers looking for current interest rates, usually found in the real estate section. Or, you can contact a mortgage broker to do the work for you.
2. Determine what type of mortgage is best suited to your financial situation. You can choose fixed, adjustable, or a hybrid of the two.
3. Compare the rates you find to what you're currently paying on your mortgage.
4. Use a financial calculator or an online mortgage calculator to find out how a new interest rate would affect your monthly payments, taking into account the amount your currently owe on your home loan. Use the following information in your calculations: current loan amount including closing costs (points, title, and escrow fees), new interest rate, and period of the new loan.

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When making a decision to refinance, take into account the reasons for refinancing. Are lower mortgage interest rates tempting you to refinance, or the possibility of using some of the equity in your home to rid yourself of accumulating debt? If you plan on refinancing for the latter goal, add up the monthly payments of all the loans you plan on paying off and compare that amount to the new monthly mortgage payment.

Just be aware that if you plan on refinancing in order to pay off other loans and debt, treat the refinancing as a loan – it will have to be repaid eventually.

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