Refinancing A Home

There are many people today that are refinancing their mortgages and many more who would like to but just aren’t sure how it works.  When done right, home refinancing can save you literally thousands of dollars over the life of your mortgage loan.  If you’re qualified for home refinancing and are curious as to how it can save you money, let’s examine this subject a bit deeper here.

When your original mortgage is set aside or paid off in exchange for an entirely new one, this is called home refinancing.  Your original mortgage doesn’t get tweaked or adjusted but this is a brand new loan you’re getting.  Typically people apply for home refinancing because this new loan will be written with a lower interest rate.  If you get an interest rate that’s even two percentage points lower than your current rate, you could save literally thousands of dollars in interest charges over the life of your home loan.

This is sometimes difficult for some homeowners to comprehend because this lower interest rate might reduce your monthly payment only by a hundred or two hundred dollars which to some people doesn’t seem like a lot.  However if you think about how many years and monthly payments you have left on the life of your loan, you realize that the savings from a home refinancing will eventually add up.


This lower monthly payment is also worth considering.  If it’s just a hundred dollars you need to consider this against the cost of home refinancing itself; you’ll have prepayment penalties and closing fees and these typically add up to a few thousand dollars.  Saving just a hundred dollars on your mortgage every month will mean that it will take years before that savings offsets the cost of a home refinancing, so it might not be wise to go through that now.

However if you save two hundred or more dollars every month, then you can consider this against those costs.  If your breakeven point is less than two years away, remember that after that time the money you save is in your pocket.  For some people saving two hundred a month through a home refinancing might not mean much but think of how that money can work for you. 

It can be used to pay down credit card or other debt, thereby saving you money on interest for those items as well.  Or you can continue to make your current mortgage payment even after it’s been lowered so that you pay down the mortgage early, saving you even more money.

Or that money can be put into an interest bearing savings account or used to purchase certificates of deposit, treasury bills, or other investments.  If you take the money you save through home refinancing and use it in this way it can really add up in the long run.  So you see there are many ways that home refinancing can make financial sense whatever your particular situation and circumstances.