Because of low mortgage rates, many homebuyers choose to refinance their current home loan. Refinancing at a lower interest rate means homeowners will pay reduced monthly payments. The ultimate goal of refinancing a home loan is to save money. Although refinancing may appear to be a smart move, there are factors that must be considered before submitting a refinance application.

Is Refinancing Worth It?

The first question that homebuyers need to ask is whether they will benefit from refinancing their home mortgage. While various mortgage companies and commercial advertisements encourage refinancing, unless a home's current mortgage rate is at least two points higher than the current market, the process of refinancing a mortgage is not worth the effort. Because of refinance fees and costs, savings are marginal.

Why Refinance a Home?

Refinancing a current home loan is more beneficial for individuals who have significantly higher interest rates. Homebuyers who purchased their home prior to declining interest rates may have rates four or five points above the current market. Moreover, homeowners with an adjustable rate mortgage may consider refinancing to obtain a fixed rate. Fixed rates are more ideal because the interest rate will remain the same throughout the life of the loan, unlike adjustable rates which may fluctuate according to the current market. An adjustable interest rate may gradually increase throughout a 30-year period, which means increased monthly payments.

How to Refinance a Mortgage?

Mortgages are refinanced through mortgage lenders. The process is very similar to applying for a home loan. Homeowners may either contact a mortgage lender to discuss services and options, or obtain a refinance quote through a mortgage broker. Many prefer mortgage brokers because they negotiate with several lenders for the lowest possible rates. Furthermore, mortgage brokers provide homeowners with multiple offers from reputable lenders. Thus, homebuyers are able to compare rates prior to choosing a lender. Fees are incurred with refinancing a home loan. These include application fee, loan origination fee, title search fee, etc. Homeowners save money with online mortgage brokers because certain fees do not apply to electronic applications. Moreover, some lenders waive selected fees.