February 6, 2009

What to know before you refinance

By Marcie Geffner • Bankrate.com

The most fundamental consideration in whether a homeowner should refinance an existing mortgage is the break-even point that represents how soon the cost of the refinance will be recaptured through lower monthly payments. But while the break-even point is easy enough to calculate, other factors may also influence your decision and, if it's a go, the type of loan you'll select.

While there is no rule of thumb for the maximum payback period, or break-even point, that makes sense for most borrowers, three years or fewer typically is considered reasonable if you intend to keep your mortgage at least that long.

To calculate a break-even point, divide the anticipated total cost of your refinance by the monthly savings on your loan payment. The result is the number of months that would be required to recoup the cost.

Read on: http://www.bankrate.com/brm/news/mtg/20090205-what-to-know-refinance-a1.asp?prodtype=mtg.