4 things to check out if you refinance

Most homeowners refinance when they're unable to keep up with their mortgage payments and look for a change in their loan terms or the rate they've been offered. But one doesn't benefit from a refinance if he doesn't save in the monthly interest payments. Getting to save by refinancing is possible only if you get a rate 2% lower than that of your current mortgage. There are useful mortgage calculators available on the web which gives an updated picture of the mortgage rates.

There are some more factors that can help you benefit from mortgage refinance. Check out the 4 things before you refinance, as these will help you get the maximum benefit when you do so.

1.Loan costs: Make a sum total of the costs in the refinance loan including the points, application fees, loan origination, appraisal fee, attorney and credit report fees, inspection fee, upfront PMI amount, recording, survey, title insurance and underwriting fees.

2.How much you'll save monthly: Figure out how much you'll save on a monthly basis compared to what you're paying now on your current loan. Use a mortgage calculator to work out how much you'll save by refinancing.

3.Break-even period: Calculate the costs on the new mortgage loan and then divide it by the monthly savings in refinance. This will give you the number of months it'll take you to offset the costs of refinancing. This is known as the break-even period. You should be staying in your home for more than the break-even period to actually save by refinancing your mortgage.

4.Net savings: To determine the net savings, you'll have to first calculate the tax costs. This can be done by multiplying the monthly savings by your combined state and federal tax rate. Then deduct the tax costs from the monthly savings in order to find out the net savings.

Apart from the above factors, you should also consider the prepayment penalty which can add up to 6 months interest on 80% of your loan balance. So check out for any penalty your lender may charge when you refinance. Also, see if the lender accepts mortgage points as you are likely to get a reduced rate if you pay points.