Financial Literacy Tip:
Refinancing Your Mortgage

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When to refinance:

There are two good times to refinance your mortgage. The first time occurs if you have an adjustable rate mortgage and interest rates are increasing. By refinancing your mortgage, you can obtain a fixed rate mortgage and secure what your monthly payments will be as interest rates continue to rise. The second time is when interest rates are decreasing. You can lower your monthly payment by taking advantage of a lower interest rate.

When not to refinance:

If you are considering refinancing solely because you have a cash flow issue, you need to be careful. If you extend the term of your loan or if you do not reduce your interest rate, you may solve your short term cash flow problems but you will ultimately be paying more in the long run.

Costs to consider:

In addition to interest rates, there are other factors that need to be considered when refinancing. There factors include the following: points, closing costs, and private mortgage insurance premiums.

Points

Points are prepaid fees. One point equals one percent of what you are borrowing. Typically, points are charged as part of the loan origination fee. In addition, lenders charge points for loans for interest rates below the current market rate.

Closing Costs

Closing costs include a variety of fees such as appraisal fees, title search, and recording and processing fees.

Private Refinancing Insurance Premiums

Private mortgage insurance premiums may be charged when the amount you are borrowing is greater than 80% of the appraised property value.

How do I calculate refinancing of my mortgage?

There are numerous sites that have mortgage refinancing calculators available on them. One of these sites is http://www.forbes.com/tools/calculator/mortgage.jhtml.

I am interested in learning more about refinancing my mortgage.

This website is created and maintained by the Alma College Students in Free Enterprise (SIFE) team Financial Literacy Team. If you would like to contact us with further questions or would like to comment, please feel free to email us at ACSIFE@almasife.com. Keep in mind that we are college students and not trained financial professionals. We will do our best to help you or find someone else that can!

Information sourced and obtained:
Forbes.com: www.forbes.com
AICPA 360 Financial Literacy: www.360financialliteracy.org
Virginia Cooperative Extension: www.est.vt.edu
Mortgages-Only: www.mortgages-only.com

This information is provided as a public service by Alma College Students in Free Enterprise (SIFE).
This information should in no way be taken as a recommendation or directive by trained financial professionals. If you are having financial difficulties, please contact your nearest local financial professional to assist you. Alma College & Alma College SIFE absolves itself from any damages (financial or otherwise) resulting from the usage of this information.