One of the things that is continually asked these days is “Should I refinance my home mortgage?”

Things are moving so quickly with the economy, that it is no wonder that you may be confused and not sure whether or not to get a mortgage refinance.

The recent downgrading of the US credit from AAA to AA+ was a big hit to the nation and many people are trying to work out whether or not that is going to have an effect on home mortgage interest rates.

Keep in mind, Fannie Mae and Freddie Mac are part of the Government so the downgrade affects the two largest mortgage holders in the nation.

Additionally, the FED has announced that rates are going to stay low for the next 2 years. When the FED says low, that means close to zero.

I’m going to talk about things to think about before refinancing, but before I do, I want to say that it may be a good idea to refinance if you have great credit, and the interest rate you lock in can drop your monthly payments by hundreds of dollars.

Three Factors to Consider Before Refinancing

Recently, the Fed announced that they are maintaining the low interest rates until the year 2013. This is good news for those with good credit standing and for those with some home equity left because these individuals and families still have a chance to refinance their mortgage with the lowest rates. However, even if low rates are available at the moment, this does not mean that it is always a good idea to refinance. Here are the reasons why:

First, since low rates will continue for a little while, refinancing should not be rushed. Individuals and families can still make use of the time to build a strong credit so that when the decision is made to finally refinance, the lowest rates are obtained.

Second, it is best to consider the fees that come with refinancing. With this, it is best to keep the loan long enough to be able to justify the charges. Find out about the fees that you might potentially pay; those that you will surely pay; and those that you may or may not pay. Familiarity with these charges is important before refinancing in order to generate extra savings.

Third, note that points gathered from payments can be deducted in one’s taxes for the entire duration of the loan. With this, the cost of the loan will greatly decrease because of tax savings. For example, if an individual obtains a mortgage of $300,000 and pays 2 point or 2%, he or she has to make an upfront payment of about $6,000. If the person belongs to the 25% tax bracket, the savings will be 25% of $6,000 or $1,500 for the entire duration of the loan. When computing for the real after tax cost, the 2 points will generate a tax savings of $4,500. This is obtained from deducting $1,500 to $6,000.

Despite the low rates these days, it is best to think things through before refinancing. Consider and compute the costs and check if there are savings that can be obtained from it. Otherwise, postpone refinancing if after a thorough computation, it ends up as a bad deal even when the rates obtained are lower.

Whether or not to refinance is really a personal choice. I have friends that have refinanced 5 times in the last year. And, everytime they have refinanced, they have saved hundreds of dollars. Their current interest rate will be 4%. Now, their mortgage is close to 1 million. They live in a home in Hawaii.

The point is, you need to make sure that you do the numbers, do the research and make sure that you are comfortable with the numbers.

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