When monthly expenditures get out of hand, many people turn to refinancing their mortgage as a way to free up more of their monthly income.  When considering this option, it is important that homeowners are aware of the various ways they can refinance.  It is also a good idea to bear in mind the long-term cost and current mortgage refinance rates and fees, before deciding if home loan refinancing will make financial sense.

A homeowner, who is looking for a mortgage refinance, should first find out the mortgage refinance rate that may be available to them.  They can do this in several different ways.  One way is to contact their current lender to see what home refinance rate they are currently offering.  The next option is to check rates with banks in their area and with online lenders.  Comparison-shopping is usually the most important step consumers can take to find the best mortgage refinance rates available to them.

It is possible that the homeowner’s current lender will not offer them a lower rate.  After all, this lender has already secured the borrower as a customer at the higher rate.  Providing them with a cheaper mortgage refinance rate means they will make less income on the same money.  On the other hand, a different lender has the incentive to offer a low-interest mortgage refinance rate in order to secure new business.  Competition among lenders today can lead to significant savings for borrowers.

Even with this knowledge, comparing the costs between different lenders could still intimidate the average borrower.  To help counter this problem, most lenders now have websites that can estimate the mortgage refinance rate a borrower could secure with their company.  A number of websites also have mortgage refinance calculators that will estimate the long-term and short-term costs of entering into a mortgage contract with their company.  This calculator will be based on the homeowner’s principal, interest, tax, and insurance (PITI).  In short, a PITI is a combination of all the charges included in the monthly mortgage payment.

To make the search even easier, there are also third party websites that compare mortgage rates that are being offered by a number of different lenders.  These websites can be very valuable for those borrowers who do not have the time or patience to visit a dozen lender websites. 

When making final decisions about refinancing options, it is imperative to compare the current mortgage with the estimated costs of the refinanced mortgage.  Many refinanced mortgages will offer a lower home mortgage refinance rate, but the duration of the contract will be for a longer period of time than the existing mortgage.  The lower mortgage refinance rate and lower monthly payments can be initially attractive; however, if the loan term is extended, the borrower might end up paying more for the refinanced mortgage than they would for the initial mortgage agreement.

In addition, there are usually fees associated with refinancing a home loan.  Some lenders will charge an origination fee, processing fee and closing fee, which will be added to the principal balance of the new loan.  Securing the best mortgage refinance rate may not be beneficial to a homeowner if these additional fees are excessive.

The best way to determine if the refinanced mortgage offer is better than your current mortgage is to determine the break-even point.  This is the point at which the mortgage agreement ceases to be a money-saving deal.  For example, let’s say a borrower has 6 years remaining on their current mortgage.  With the new mortgage refinance rate, their new loan term will be 10 years.  The borrower must then decide if having a lower rate for a longer amount of time is better than a higher interest rate for a shorter amount of time.  Where does the break-even point occur, or does it?

Refinancing a high interest mortgage loan may seem like a good way to manage increasing monthly debt.  In some cases, it may be very beneficial for a homeowner to do this.  However, securing the best mortgage refinance rate should not be the only determining factor.  Long-term costs or other associated fees should also be part of the equation.  As always, an informed decision may take longer to reach, but it will make more sense in the long run.