Replacing your current mortgage with a new mortgage is becoming more and more common in today’s marketplace. Refinancing is the most common term for this practice. Taking your existing loan and restructuring its type and term and also the possibility of obtaining a new and lower interest rate are some of the common benefits that homeowners seek to gain by engaging in a refinance of their home’s mortgage.

Your Options

1. A lower interest rate on a fixed rate loan for the same term as your current fixed rate loan. The payments that you as the homeowner are required to pay monthly will generally be lower.

2. Your 30 year mortgage could also be replaced with a 15 year mortgage, which essentially replaces your original fixed rate loan, with a new fixed rate loan for a different term. You can save a large amount on interest of the term of your loan with this option as you will be repaying your mortgage faster, however, you will likely not see a reduction in your monthly payment.

3. Changing your fixed right to an ARM or adjustable rate mortgage, which may leave you with a higher mortgage payment at some point down the road when interest rates change, however, you would likely have a lower mortgage payment at the outset.

4. Changing to a fixed rate loan from an adjustable rate mortgage or ARM. This will add stability to your monthly payment, but you may find that your payments are higher each month.

Mortgage Costs

Refinancing your existing mortgage can come with heavy costs, so, you should certainly consider all of these associated fees when you are thinking of refinancing. Mortgage prepayment penalty, mortgage recording fees, mortgage application fee, points, inspection fees, legal fees, appraisal fees, credit report fees, title search and title insurance premiums, should all be considered as part of the cost of refinancing your mortgage. The costs associated with the original mortgage may be equal to or even less than the fees associated with closing on your new loan.

Unless you can get 2 points or more below the rate of your original mortgage, it is probably not worth the costs of refinancing your existing mortgage into a new loan.