Deciding whether or not to refinance your mortgage is
a decision that needs careful consideration. If you have a fixed rate
mortgage and mortgage rates are falling, then it makes sense to
consider trying to refinance at a lower rate. Unfortunately it isn\'t
always a simple matter. Refinancing can and does make sense, but it
costs money to refinance a mortgage. It depends to some degree on your
specific situation.

Adjustable and Fixed-rate Mortgages

If
you have an adjustable rate mortgage and your rate has been set to a
higher rate than the initial low rate, you should definitely look into
refinancing. Adjustable rate mortgages do change their interest rates
over the term of the loan, and when the rates go down, that can be
good. The problem is that you\'re still likely to be paying more than
you would with a fixed-rate mortgage.

A fixed-rate mortgage can
be one of the best ways to finance the purchase of a home. And because
the interest rate doesn\'t change over time, your payment stays the
same.

The downside is that if mortgage rates fall in the future, you\'re
going to be paying more interest than you would get on a current
mortgage. However, the reverse is also true. If you\'re locked in at a
relatively low interest rate and the interest rate does rise, you\'re
getting significant savings over others who may be getting current
loans at the higher interest rate.

Consider the Costs Involved

When
thinking about refinancing your mortgage, you want to look at how long
you plan on being in the home. There are closing costs that can amount
to thousands of dollars, so you have to look at how long it would take
to break even if you were to refinance.

For example: Let\'s say a 1% lower interest rate would reduce your
monthly mortgage payment by $100. Let\'s also assume that your closing
costs on the refinance total $3000. That means that you\'d have to stay
in the house for 30 months to break even on the refinance.

Consider the Amount of Equity

Consider
the equity you have in the home. If you have been living in the house
for a while and have built up a certain amount of equity, you can save
even more money since you may be able to refinance an amount lower than
the original loan amount. This can reduce your monthly payments by
itself, the lower rate just being an added bonus.

Remember the New Terms

Refinancing
will extend the term of your loan again. If you\'ve been making payments
on your 30-year fixed mortgage for the last 10 years, you had 20 more
years to go. If you refinance and choose another 30-year mortgage,
you\'re all the way back where you started. You can, however, refinance
from a 30-year loan to a 15-year loan if you already have a good number
of years under your belt.

In Conclusion

There are a number
of things to think about and carefully consider before running to the
bank to refinance. Lower mortgage rates are good and can save you
money, but you have to consider how long you\'re planning on still
living in the house and whether changing the terms will ultimately be
to your benefit. You\'re credit history is more important than ever if
you\'re looking at refinancing, since with some negative marks on your
report you may not be able to take advantage of the best rates.