1. Understand the process. Refinancing your mortgage typically involves paying off your original mortgage and signing a new loan. Be prepared to encounter many of the same costs you paid when you got your original mortgage, including settlement costs, discount points and other fees.

2. Count all the costs. To find out if refinancing will save you money, factor in all the costs associated with refinancing and make sure interest rates have come down enough.

3. A point about points. The lower your new interest rate, the more points the lending institution will charge you. A point equals 1 percent of the loan amount. To obtain a lower rate, a lender may charge you three to six points, which would cost you $3,000 to $6,000 for a $100,000 mortgage.

4. Consider your timing. Points are more expensive if you don't intend to stay in your home very long. If you do plan to stick around, it may be worth it to pay more points for the sake of securing a lower interest rate.

5. Shop around for a lender. Ask each lender to provide you with a list of costs you'll be expected to pay at closing, and find out whether you'll have to pay any of those fees when you apply for refinancing. Also, ask lenders about their annual percentage rate, which will reveal the total credit costs of refinancing.

6. Make smart tax choices. Bear in mind that a lower interest rate will leave you with less interest to deduct on your income tax. This could increase your tax payments and decrease your total savings from refinancing.

7. An elementary deduction. The Internal Revenue Service mandates that the interest, or points, paid upfront for refinancing must be deducted over the life of the loan, not in the year you refinance. But if you use your new loan, or a portion of it, to make home improvements, you may be able to deduct the points on that year's income tax.

8. Get it in writing. If you don't want to miss out on a certain interest rate while waiting for your closing date, ask the lender for a written statement guaranteeing the interest rate and the number of points you will pay.

9. A 30- or a 15-year loan? Shorter-term loans are ideal for people who want to pay off their mortgages before retirement. Such loans save thousands of dollars in interest, but they result in higher monthly payments. Consider whether you'd be better off opting for a 30-year loan and investing the money you'll save in monthly payments.

10. Avoid fees when possible. Ask for a refinancing rate on your title insurance, and try to use an existing survey. You also can save a bundle if you're able to drop your private mortgage insurance because you have equity worth 20 percent or more of the home's value.

Sources: Federal Trade Commission (http://www.ftc.gov); Kiplinger's Personal Finance magazine (http://www.kiplinger.com); and Invest in Yourself: Six Secrets to a Rich Life (http://www.investinyourself.com)

Back to Business

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright

Special Links

Stocks

From the Times
Business report

Will that be cash or stock?

Fearless and vocal analyst takes on Hugh and 'Taj McColl'

Loose change

Spouse wants to ensure wife will get assistance

Ten tips

Florida municipal bonds on upswing

From the AP
Business wire

From the state business wire

Judge denies dismissal of Citigroup shareholder suits

Carnival to buy 4 cruise ships from Italian builder