Comparing Mortgage Rates Won't Necessarily Save You Money

Many people think that refinancing is the right option for them and will automatically save them thousands of dollars in the long run. This may be true, if the new mortgage rates you're being offered will offset the costs of refinancing. There are some easy ways to figure if comparing mortgage rates will actually save you money with a refinancing, or not. Let's take a look at that process here.

Finding What Mortgage Rates You're Eligible For

Applying for a mortgage refinancing is much like applying for a new mortgage - the rate you're offered depends on many factors, including your credit history, income, and these types of things. It's tempting to assume that since you've been paying your original mortgage for so long that you're just automatically qualified for those great mortgage rates you see advertised, but this may not be the case. As a matter of fact, if you've suffered financial setbacks since you signed your original loan, you may not be qualified at all for a new or better rate.

The best thing you can do to find out if you're qualified for those low mortgage rates is to find out your own credit score, and then call your bank or start shopping around. While they can't actually pre-approve you over the phone, they can tell you if your credit score makes you qualified for new and reduced mortgage rates and should be able to tell you what those rates are; even if it's a "ballpark" figure, you should be able to proceed with figuring if refinancing is right for you.

Doing Some Calculating

Once you have that estimate of the new and reduced mortgage rates that you're eligible for, you need to run that amount through a mortgage calculator, which will tell you the approximate new monthly payment you would have, and how much you'll be paying in interest over the life of your remaining mortgage amount.

When you have that amount, you need to add up the costs of refinancing. This will include prepayment penalties for your existing mortgage, appraisal fees, lender fees, points, loan origination fees, and anything else your current bank imposes on you. Applying for those new mortgage rates means paying all the costs and fees that you paid with your original mortgage, and sometimes more.

Those two amounts now need to be compared. Will your new loan with the reduced mortgage rates make it worth paying those penalties and fees? How much money will you actually be saving every month and over the life of your loan? How long will you need to pay your new loan with reduced mortgage rates before you save enough every month to match that amount? This is called your breakeven point, and if it's years away, it might not be worth the expense and paperwork to refinance, at least not yet.

By understanding all the figuring and costs involved with refinancing, even if it means getting greatly reduced mortgage rates, you can make the best financial decision possible.