Why would you want to refinance your mortgage? Here are some reasons: maybe you want to change from an adjustable rate mortgage to a fixed rate. Maybe you want to lower your monthly payment. Maybe you need to get cash out of your home equity. Or maybe you want to consolidate several high interest loans into one. Refinancing your mortgage would be a way to accomplish any of these goals, but it is a fairly big important step to take, not something you would want to do too often. Maybe once every five years or even less frequently. Maybe only once for the whole time you own your home.
There are numerous factors to consider in refinancing, so there is no simple yardstick to measure whether it will be of benefit to you. Generally, you must get a lower interest rate, plan on staying in the house at least a few years, and save enough to pay for the closing costs. The closing costs could amount to several thousand dollars, so you must save enough on your new loan to pay these off in a reasonable time frame.
You will have to pay closing costs, but some lenders will just include them in the new mortgage, thus increasing your principal and interest. Some lenders will allow you to stretch out the term of the loan so that you monthly payment may be less, but you pay it for a longer time. A friend of mine was able to refinance her home at a lower interest rate for a longer term. This allowed her to lower her monthly payment and get a nice piece of cash to pay off her medical bills. The downside is that she will have to keep paying on the mortgage for a longer time. If you refinance too often, these closing costs may prevent you from ever coming out ahead. Or if you sell before recouping the closing costs, you lose.
Try starting with your current lender to see how they can help. Then shop around. Try some of the many online mortgage calculators to see how much if any you will save. This page can help.
Add up all the costs for principal, interest, and closing costs for the whole term of the mortgage (the lender should do this for you) and find your total cost. Then compare the total remaining cost of your current mortgage. Of course if you sell the house before paying it off (as most people do) you reduce the amount you save.
You must stay in the house to save enough to pay off those closing costs. How long? Here’s how to find out: Add up all the closing costs. Find out how much lower you monthly payment will be. Divide the closing costs by the monthly savings. This will tell you how many months until you have paid off the closing costs. After that you are coming out ahead. Many of the online calculators will do all this for you.