Lets say for the sake of argument that you have purchased a 30-year fixed mortgage on a home that is worth $500,000 at an interest rate of 6.3%. After a couple of years, interest rates on a 30-year fixed mortgage drop approximately 2% all the way down to 4.3%. Paying off the same $500,000 loan (Or whatever is remaining) at this lowered 4.3% interest rate could potentially save you thousands of dollars or shorten your loan term.
Mortgage professionals believe that even a small drop in interest rates has the potential to generate a large amount of savings for the mortgagee. This is especially true if you are able to find a mortgage lender who is willing to waive the common start-up fees in exchange for a rate that is slightly higher than the going market rate. (Obviously this "higher-than-market" rate should still be lower enough than your standing rate to generate savings)
What are the costs associated with refinancing mortgages?
You will generally have to pay most of the same costs that were paid for your initial mortgage. Such costs can include:
- Settlement costs
- Credit Check
- Early termination of loan penalty (Prohibited in some states)
In some cases, you can find a lender who will waive some or all of these origination fees in exchange for an interest rate that is slightly higher than the going market rate. In order to offer the lowest available interest rates, many mortgage lenders will charge "points" on mortgages that can end up running anywhere from 3% - 6% of the loan value. It is generally felt that paying points to get such a lowered interest rate can be beneficial if you are planning on remaining in your home for 3 - 5 years or longer.
Learn how a ( MORTGAGE CALCULATOR ) can facilitate refinancing