That article is about Costs versus profits of home loan refinancing. If you are going to refinance your mortgage you have to make sure that you understand both the benefits and the costs that come with doing so. If not you may find that you spend more on refinancing than you actually gain by doing it, clearly something that needs to be avoided. Fortunately it is very easy to work out the costs and the benefits of refinancing so there is no reason that you should make a mistake in this regard.
The most common reason that people refinance their mortgage is to reduce the amount of interest that they pay. This often makes sense as the savings can be in the thousands of dollars, the problem is that so can the expenses. You have to make sure that you calculate the fees that involved in refinancing as well as the amount that you will save in interest. Calculating your interest savings will be easy, there are lots of online calculators that you can use for that. In order to determine the fees you will likely need to talk to your bank.
While it is important to actually calculate the fees and interest savings that you incur there are a few guidelines that you can use to help you to decide if it makes sense to refinance. The first is the change in the interest rate. It used to be that as a rule of thumb it required a two percent reduction in interest rate for refinancing to make sense. This is not really the case any more as the cost of refinancing has come down. That being said if the change in interest rate is a fraction of a point it likely does not make sense to refinance.
Far more important in the decision about whether or not it makes sense to refinance is how long is left on your mortgage. The longer you have left on the mortgage the more sense it makes and the less of a change in interest rate will be necessary. You will also want to consider how long you plan to live in your current home. If you are planning to move in the next couple of years it usually does not make sense to refinance, unless you are getting a huge reduction in interest rates.
There is one other calculation that you have to make when you are deciding on whether or not it makes sense to refinance and that is private mortgage insurance. If you have enough equity in your house that you don’t have to pay it you are not going to want to put yourself in a position where you do have to pay it. That means that you have to be very careful about taking equity out of your house. Private mortgage insurance is effectively an increase in your interest rate of one to two percent. Clearly getting rid of it as fast as possible is important.