Refinance a Home Mortgage for Interest Rate Reductions

People refinance mortgages for many reasons. But one of the most common reasons is to obtain a better interest rate, which can save you money over the life of the new mortgage loan. In other words, people refinance a home mortgage for interest rate savings -- thus lowering their total monthly mortgage amount.

Refinancing for Better Interest Rates

So how does one go about refinancing a home mortgage for interest rate savings? Well, the first thing you should do is to determine whether or not it's a good idea to refinance your mortgage in the first place. Some homeowners wrongfully assume that any mortgage refinancing that lowers their interest rate is worth pursuing. But this is not the case.

Here's the key to determining whether or not you should refinance your home mortgage for interest rate reduction. If the money you save over the life of the new mortgage (through interest rate reduction) exceeds the amount of money you spend to refinance (closing costs) -- then it might be wise to refinance your home mortgage for interest rate savings.

On the flip side, if you spend more to refinance the mortgage (through closing costs) than what you'll save over the term of the mortgage, then it doesn't make much sense to refinance. This concept is known as the refinancing "break-even point." Before the break-even point, it doesn't usually make sense to refinance the home mortgage. After the break-even point, you can often save money so it makes more sense to refinance your home mortgage loan.

Determine Your Break-Even Point

So how do you determine your break-even point, and by extension whether or not you should refinance your home mortgage for interest rate reduction? For starters, you can use a refinance calculator like those offered in the Resources section of our website. Such calculators are designed to show you the total savings (or lack thereof) you can gain from your mortgage refinance. Of course, it's always wise to speak to a professional financial counselor as well.

I hope this article helps you understand how to refinance a home mortgage for interest rate savings, and I wish you the best with your financial future.

by Brandon Cornett