When does refinancing make sense?

     Answering this question goes hand in hand with the one you are most likely wondering about - how do I go about refinancing my mortgage. Though individual factors may differ, following are a few times when refinancing might make sense.

If rates drop:

      In general, when rates drop roughly one percent or more, refinancing your mortgage can save you money. Refinancing can lower your monthly payments, and, in certain cases, may waive mortgage insurance.

If you want extra cash:

     Refinancing your mortgage may reduce your monthly payments, and free up some equity for other things. If you are seeking additional money, but a straight refinance isn't equitable, you may consider a Home Equity Line of Credit. This program lets you borrow against the equity in your home with a credit account, checking account and/or direct payment.

If you want to consolidate debts:

     If you have equity in your home, you can consolidate all your debts into one payment by refinancing. Generally, your overall monthly payment can be significantly reduced plus, all the interest you pay on your mortgage is tax deductible (whereas interest on credit cards, car loans, student loans, etc. it is not). However, if interest rates have not dropped considerably, you may consider consolidating your debts with a home equity loan.

If you plan to stay in your home for a period of time:

     The longer you plan to stay in your home, the more you can benefit from a lower interest rate. Refinancing may not be as beneficial if you plan to sell your home in the near future.

If you want to reduce the term of your mortgage:

     Refinancing from say a 30-year loan to a 15 year loan means you will build equity and pay off your mortgage quicker. Though your monthly payments will be larger, you will save on the total interest (paid over the life of your loan) and generally, rates on shorter-term programs are lower.

When does refinancing not make sense?

     Follow these tips to help avoid common refinancing pitfalls.

When your interest rate is not lowering much:

      Generally, refinancing costs about 1.5 to 2 percent of the loan amount. So to be equitable, your interest rate must be bettered by about one percent or more (when paying full closing costs). There are no cost rates available where all of the closing costs are built into the rate. In these cases only a slight lowering of the rate is necessary for refinancing to make sense.

In order to remove Mortgage Insurance (on conventional loans):

     Mortgage insurance can be dropped by refinancing. However, if rates have not dropped enough to make refinancing beneficial, there are other ways to drop the insurance. On conventional loans, mortgage insurance can usually be removed by requesting an appraisal. Seattle Mortgage requires that you have at least 25% equity in your home with the new appraisal to remove mortgage insurance, but each investor is different. If your loan is not serviced by Seattle Mortgage you must contact your service for their guidelines. Generally the cost of an appraisal is $350 which is much cheaper then refinancing.

To eliminate a borrower from title: