Depending on what you do with the money you save by refinancing your home, you can also earn interest on that money or use it to pay off your mortgage early! But before you reach that point, let’s go over some quick tips to help you through this process.

First, understand that refinancing your home means setting aside or settling your original mortgage in exchange for a new one. This means that you need to qualify for refinancing. Even if you qualified for your original mortgage, things may have changed since then.


You may have blemishes on your credit record or changes to your earnings, or your lender may have changed their lending requirements. So refinancing your home isn’t always an automatic option. Your lender can tell you if you qualify or not.

Second, when refinancing your home you pay prepayment penalties for settling that original mortgage. You can check your current mortgage for what these penalties are. You’ll also pay closing costs similar to what you had for your original mortgage. It’s important to understand these costs so you know what’s expected of you when refinancing your home.

After you’ve reviewed your mortgage, you need to make an appointment with your lender. There is an application process you go through much like applying for your original loan. When refinancing your home your lender will ask for some documents such as proof of earnings and will need to have you set up a time for an appraisal.

They will also get a lot of paperwork on their own, such as your credit report and a title search. Your application will also go through their underwriters, which are people that just double-check the application and all the paperwork.

Through all of this, remember that your lender is supposed to help you through the process of refinancing your home. If you have questions about anything, such as your new interest rate or monthly payments, don’t hesitate to call and ask.

Make sure you understand the paperwork given you regarding your new loan as this agreement is just like your original mortgage – it can be somewhat complicated and difficult to understand. While refinancing your home may be the best financial decision you ever make, it may also be a very difficult one. So never hesitate to speak up and ask your lender a question if you have one.

After the underwriter has gone through the paperwork and application, the process of refinancing your home is typically complete. If you’re owed money due to equity in your home, this is when those funds are released. And now you have a new mortgage that saves you money!

Typically this is done because the homeowner can qualify for a lower interest rate which would save him or her literally thousands of dollars over the life of the loan. However this means that the lender is losing those interest payments.

So why would they allow anyone to do this? It has to do with refinancing fees that are common with this arrangement. Those fees are meant to offset the money that a lender will be losing and in some cases they make this process not worthwhile for a homeowner.


How can you know if refinancing fees in your case will be manageable and that your savings will be worth those fees? How do you even know what those refinancing fees will be?

Typically your current mortgage will spell out your prepayment refinancing fees. Usually these are described as points; a point is usually 1% of your loan balance. That translates to $1,000 for every $100,000 of your mortgage.

So 2 points of a $100,000 loan equals $2,000 and so on. Your mortgage will usually say how many points you have to pay in refinancing fees, and you can do your own math. Take your current mortgage balance and multiply it by .01 for 1 point, .02 for two points, and so on.

So if your current mortgage is $250,000 and your prepayment refinancing fees are 3 points, you would multiply that $250,000 by .03 and come up with $7,500. This means that you would need to pay $7,500 just in prepayment penalties alone.

These points aren’t typically the only refinancing fees you’ll need to pay. Just like with your original mortgage, you need to pay closing costs and fees when you go through the refinance process. These costs include things like an appraisal on your home, an inspection of the home, a title search to see if there are any liens on the property, a credit check for you, and so on.

Just like closing costs on your original mortgage, you’ll be responsible for these refinancing fees which typically run over $1,000. Some have the option of rolling these costs into the mortgage itself but of course this will raise the amount you’re still responsible for.

The only way to know for sure all your refinancing fees is to review your current mortgage and speak to your lender. Usually you can do this over the phone; simply tell him or her that you’re looking to refinance and want to know your specific refinancing fees.

They can review your mortgage itself and explain these fees in greater detail and give you specifics. After that you need to decide if the savings you would get from refinancing would offset those fees enough to make refinancing a worthwhile decision for you and your financial portfolio overall.

This can mean freeing up money in the family’s budget which can be used to pay down debt or to add to a savings account. But this process doesn’t always work for everyone. So how can you know if you should refinance a mortgage loan? Let’s review this process so you can make a better decision for yourself and your family.

First, you do need to qualify in order to refinance a mortgage loan. Just because you got a mortgage before doesn’t mean you’ll qualify now; you may have some new spots on your credit record or might have lost some earnings, or your lender may have tightened their credit requirements.


However, let’s just assume that you do qualify to refinance a mortgage loan and look at some details of the process to see if it would work for you.

To refinance a mortgage loan means to set aside or settle your current mortgage in favor of a new one. This new mortgage should have an interest rate that’s much lower than the one you’re currently paying so that you have a lower monthly payment and will pay less interest over the life of your loan.

However, in order for your lender to recoup some of this money that they’re losing they charge a fee to refinance a mortgage loan. This fee is usually a small percentage of your current loan, such as 2.5% or 3%. You need to read over your current mortgage to find out your prepayment penalty; it might be described as points, which are 1% of your current balance.

When you find out the fees involved to refinance a mortgage loan, you also need to add around $1,500 to this for closing costs, which would include things like an appraisal for the home, a title search, and so on. Then you need to discuss with your lender what new percentage you would be eligible for when you refinance a mortgage loan.

Using that new percentage and your new monthly payment, you then figure if your savings would be worth the fees and costs. For example, if all your fees and costs total $4,000 and you save only $100 per month, that means that it will take almost four years for your savings to offset the cost.

But if you save $200 a month and your costs are only $3,000 that means your savings will offset the costs in only 15 months, or just over a year. In a case like that, you would do well to refinance a mortgage loan since after that the savings will be like profit to you and stays in your own pocket.

For most people, this can be true and for those who are facing an adjustment to their adjustable rate mortgage, this might be the only way to keep their mortgage affordable and within their budget! But surprisingly enough, a mortgage refinancing doesn’t always work for everyone. Why is this?

There are a few things to consider in this regard. For one thing, there are fees and costs involved with a mortgage refinancing. Your lender has the right to charge prepayment penalties for any mortgage that is paid off early, which is what you’re doing.


Typically these costs are points, or 1% of every $100,000 left on your loan. They may charge 2 or 3 points or even more, depending on the terms of your current mortgage. They also charge the same fees that were charged at the first closing of your mortgage, including appraisal fees, broker fees, and so on.

This means that sometimes it takes months and even years for what a person saves with a mortgage refinancing to offset those costs. In cases like these, it’s often better to put off the mortgage refinancing process until your principal balance is paid down even more so that those points cost less.

Typically lenders will negotiate with a borrower who wants to pay more points in exchange for a lower rate, so you may also want to consider waiting so that you can have more cash on hand to pay more points. The decision regarding mortgage refinancing is yours to make but you want the process to be worth your time as well.

And with some who go through a mortgage refinancing, the monthly payment may be lower but this might also mean that sometimes less of the principal is being paid as well. A person can actually lose equity in their home if they lower their payment too much. Sometimes a mortgage refinancing is done purposely to lower a minimum monthly payment, more so than just lowering the interest rate.

However lenders aren’t always clear about how this amount pays mostly the interest charges and hardly touches the principal. In some cases the minimum monthly payment doesn’t even cover the interest charges, so interest is then accruing on interest which is then added to the life of the loan.

While the monthly payments may be lower for this type of mortgage refinancing, that means that a 30 year mortgage needs an additional ten years or more to be paid in full – and of course there’s virtually no equity in the home at all.

So you see that in some cases a mortgage refinancing doesn’t always work. Equity can be lost and the principal hardly touched. The amount saved also cannot be worth the fees and costs, so this decision should not be made lightly.

For some who have an adjustable rate mortgage that is about to reset to a higher rate, this may be the only way to save the home. People often don’t expect an adjustable rate mortgage to reset as high as it might, and the new monthly payment can actually be out of their budget. By using a home mortgage refinancing to keep that rate low, they can then afford the house payment and avoid foreclosure.

But for some, a home mortgage refinancing is a wise financial decision simply because of the money it saves, regardless of whether or not you can actually afford your current mortgage. If you can save a hundred or two hundred dollars every month on your mortgage, you can use this money in many other ways to benefit yourself financially.


Let’s first go over some details about a home mortgage refinancing so you understand how this works. To set aside your original mortgage you’re charged a prepayment penalty which should be spelled out in your current mortgage. These are usually points, which are 1% of your mortgage amount. You also need to pay closing costs during a home mortgage refinancing.

All of these costs usually add up a few thousand dollars. However if you’re eligible for a lower mortgage rate you usually save a few hundred dollars off your payment every month, so after a year or two you reach what is called a breakeven point. This is why your savings equals the amount you paid up front for your home mortgage refinancing, so all your savings after this point are yours alone.

So how can this process of a home mortgage refinancing benefit you financially? Obviously that money you save can be used to pay down other debt such as car loans, credit cards, student loans, and so on in order to save the interest amounts you would be paying for those loans.

You can also take that money you save every month and put it in a savings account or use to buy certificates of deposit or to invest, so that you’re actually earning money. Some also take the money they save with their home mortgage refinancing and use it to keep paying the same amount on their mortgage, even though they’ve lowered the rate and monthly payment.

This means that you’re now overpaying your mortgage which pays down the interest and the principal that much sooner. You may even pay off your mortgage a few years early if you do this! So you see that there are many options to you when you save money through a home mortgage refinancing.

The key is to take the initiative not just for the refinancing but to make that money work for you as well.

Or maybe you’ve seen some very enticing refinancing rates online and are tempted to go through the process because of those rates. While refinancing is a good idea for many homeowners and can save hundreds and thousands of dollars over the life of a mortgage, there is some caution needed when looking at refinancing rates that you see advertised online or even in newspapers and other places. Why so?

Very often these refinancing rates are purposely underinflated in order to entice homeowners into the refinancing process; just like with original mortgages, the rate can also readjust after a few months or years to something that is too high for a homeowner to handle.


A mortgage is a length, complicated legal and financial document that often hides the reset rate and the terms of the mortgage in a lot of fine print and legal terms that many homeowners just don’t understand. Believing that these refinancing rates that you see online or in print are going to be the rates that pay for the life of your mortgage might put you right back into the same position you find yourself in now.

It’s true also that many people sign on for lower refinancing rates so that they can lower their monthly payment, not realizing that they may get into a negative amortization situation. This is when the interest amount charged every month is more than the monthly payment so that you’re really not paying down the debt like you think you are.

This unpaid interest is tacked on to the end of the mortgage, not just dismissed. These very low refinancing rates can cost a person equity in their home and cause them to pay on their mortgage for years after they thought they would be done with it; often the homeowner doesn’t even realize this is what will happen. Choosing refinancing rates that are too low can give a person a lower payment but can also mean paying for many years to come and losing all that equity that they think they’re building in their homes.

And of course your own situation might mean that you don’t even qualify for those advertised refinancing rates! Your credit score might be an issue or your costs and fees may also affect the rates you actually get.

The refinancing process itself is somewhat lengthy so it’s always good to speak with your banker or lender before making any decisions. He or she can tell you the actual refinancing rates that can be offered to you and the terms as well so that you can make the decision as to whether or not refinancing is the best option for you and your family.

Of course there are fees and costs incurred when refinancing a mortgage and these can sometimes be steep, but for most homeowners the money they save every month by lowering their monthly payment soon makes up for those.

As an example, if your costs with a refinance are $2,000 and you save $200 every month, then you’ve made up for those costs after only 10 months into your refinance. You might already have an idea of where the money you saving by refinancing a mortgage is going to go, but consider how you can really make that money work for you.


As an example, many people today have far too much credit card debt. Not only are they obligated for the amount they’ve charged on those cards but the interest continues to add up as well. When refinancing a mortgage, think about how you can use the money you save toward that debt. Not only will you be paying down the principal but you’ll be avoiding future interest charges as well.

Very often the reason that people find themselves drowning in credit card debt is that they pay only the monthly minimum which typically covers the interest and only a small amount of principal, if that. But if you use the money you’ve saved from refinancing a mortgage to add to the payments you’re making this can really help to get you out from under all that debt.

Along with credit card payments, consider any other debt you have that involves interest charges and how using the money you save from refinancing a mortgage can help there. This might include your car payment, student loans, or anything else you’ve financed as well.

You can also take the money you’ve saved from refinancing a mortgage and put that in a savings account that compounds interest. If you don’t withdraw anything and just allow the balance to grow, you’ll gain interest on top of interest. Within a few years you’ll see how that money you got by refinancing a mortgage is now truly working for you by earning even more money.

Of course some people have a hard time with parting with the money they save by refinancing a mortgage; it’s tempting to use it for something more enjoyable than credit card debt! What you might do is consider splitting it, half for debt and bills and things like this and half for other spending.

Even just a third of that money can help to pay down debt or grow some savings! In any case, just make sure you’re making the best decision when it comes to using the money you save by refinancing a mortgage.

A refinance can mean getting a lower interest rate on your mortgage which means paying less in interest charges over the life of your loan and also typically means a lower monthly payment as well. But for some, to refinance a home mortgage might mean losing equity either immediately or over time.

It might not be the best thing to do from a financial standpoint and might not save any money at all. So before you refinance a home mortgage, ask yourself why you want to do this and what your long-term plans are for your home.


Are you looking to save money now, save money over the life of your loan, or build up equity in the house as much as possible? These answers will help determine if you should refinance a home mortgage or leave it as it is. Your current mortgage terms are also going to play a part in this as well.

Those looking at a reset to their adjustable rate mortgage which might put their mortgage payments out of their budget may want to consider a refinance to a home mortgage. This might be their only option if they want to actually keep their home!

But for others, consider the fact when you refinance a home mortgage, it costs you money up front to do this, usually several thousand dollars. This money includes prepayment penalties for your original mortgage and closing costs and fees as well.

If the money you save on your monthly payment is not worth those costs, then this might not be the best option for you. As an example, if your costs and fees when you refinance a home mortgage equal around $3,000 but you only save $100 on your monthly payment, it will take 30 months for you to have saved what you spent. That’s almost three years!

Others however do save enough to justify this process. If you save $200 every month, it only takes 15 months to reach that $3,000 in costs; that means that by month 16, that extra $200 you save when you refinance a home mortgage is now yours free and clear.

You can also cash out the equity in your home when you refinance a home mortgage; if you want to use that equity for another purpose this can work quite well for you but remember that this means your home no longer has any equity.

Depending upon your plans for your home this can be acceptable to you, but it is something to consider for your long-term financial goals. Whatever your plans, consider carefully why you want to refinance a home mortgage and all the repercussions and you’ll be sure to make the right decision for yourself and your family as well.

There are also many misconceptions about refinancing and typically the average person has several misunderstandings about what is involved. To help you through this let’s go over a few important steps when it comes to a mortgage refinance.

You first need to understand that a mortgage refinance is actually a brand new mortgage, not just some adjustment that gets done on your original agreement. This is important to know because you need to qualify for a mortgage refinance; if you’ve had blemishes to your credit rating since your original mortgage or setbacks in earnings, you may not qualify the way you assume you would.


There are also processes you go through with a refinance just like you did with your original mortgage, including a home inspection and appraisal, a credit check, a closing, and so on.

So if you are still considering a mortgage refinance, the first thing you should do is contact your lender and arrange to meet with him or her to see about your current situation. They can give you some preliminary numbers about what new rate you may be offered as well as tell you the prepayment penalties and points you would be charged to set aside your original mortgage.

These numbers are very important. You need to figure what your new mortgage payment would be with your new interest rate and then compare your savings with the total amount of penalties you would be charged. To go through a mortgage refinance, you’re also going to be charged closing fees just like you were with the original mortgage.

These fees include that inspection, the appraisal, a title search, your credit check, a fee for the broker, processing fees, and so on. You can usually count on about $1,500 in fees on top of those prepayment penalties.

The only way you can be sure if your mortgage refinance is a good idea is to compare the savings you would get with the total of your fees and penalties. If the savings doesn’t offset those costs by much, you might do well to wait. Your lender can also tell you how to improve the mortgage refinance process.

For example, you may be eligible to pay more of a penalty up front in exchange for an even lower rate, or you may want to work on improving your credit score so that in six months or a year they can offer a better rate at that time. Your lender should help with all these steps in a mortgage refinance, so don’t hesitate to call him or her and go through these things.

While the process of a mortgage refinance might be a bit tedious and time consuming, it the end it can definitely all be worth it!

However you can also go through a home loan refinancing even if you can afford your current mortgage payment; as a matter of fact, this is a great way to build equity. How so?

Most consumers fall into the habit of paying only the minimum monthly payment due on any bill or debt they have. If their credit card bill has a minimum payment of $75, that’s what they send in regardless of how much they owe on that card. Think about this fact when considering a home loan refinancing to build equity in your home.


The only way that you can build equity is to have less owed on your home mortgage than what your home is worth. The difference between these two numbers is the equity in your home. So how does the practice of paying only a minimum amount every month come into play when using a home loan refinancing to build equity?

One problem with trying to build equity is that when pay the minimum amount that is due, most of that goes to the interest payment and very little of it goes toward your principal. The more you pay down your principal, however, the more equity you’ll build. When you go through a home loan refinancing you typically lower your interest rate on that principal loan balance.

If you keep paying only the minimum due, you’re still not going to pay down much of the principal since your monthly payment also gets lowered.

So here’s how to build equity using a home loan refinancing. When you go through the refinance and have a lower rate and a lower monthly amount due, just continue to pay your previous amount. For example, if your original mortgage had a minimum payment amount of $1,200 and your home loan refinancing lowers that minimum to $1,000, just continue to pay the previous amount of $1,200.

When you do this you’re paying more toward the principal amount every month than you normally would since you’re overpaying your home loan. When you pay $1,000 as a payment, chances are that more than half that goes toward the interest amount due. So if you continue to pay what you did previous to your home loan refinancing you’re putting that much more toward your principal.

And of course the more of your principal that you pay down, the more equity you build in your home! Unfortunately not many people do this after a home loan refinancing, but it is a very good way to make your money work for you.