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Interest rates are at a historic low. If you purchased your home several years ago at a higher interest rate this is the time to look at your refinancing options. Refinancing doesn’t make sense in all circumstances however. Our checklist below will help you determine whether or not you’re a good candidate for a refinance.

The Equity Question
First, you need to determine if you have equity in your home or if you’re in an underwater situation. You can use sites like Zillow to determine whether or not your home is worth more than what you paid for it. Most banks will refinance up to 100% of the home’s value and some will go as high as 125%.

How Much Can You Save?
The cost savings in interest rates can be astounding. For the sake of this example, let’s assume a $250,000 mortgage at a fixed rate for 30 years. At 7% payments would be $1663 and the total interest you would pay over the life of the loan would be $348,000. At 4% payments would be $1193 and total interest payments would be $179,000. That 3% difference makes a $470 a month difference in payment and you save $169,000 in interest!

Costs and Break Even Timeline
Banks make money on mortgages in two ways. The first is the interest you pay on the loan. The second is the fees that you pay when you take out a loan. These fees can be called a number of things – points, loan origination fees and document fees. Before you decide whether or not to refinance you need to investigate what likely refinance costs will be.

If you prefer to work with a local lender, credit unions generally offer the best rates and lower fees. Make a few phone calls to determine what local closing costs would likely be. Then compare local rates and closing costs to what is being offered online.

Once you know how much it will cost in fees, you can determine how long the savings you’ll receive with the lower interest rates will take to pay off the costs you’ve incurred to refinance. If you plan on being in your home for a long period of time it usually makes a lot of sense. If you tend to move every few years however it may not make sense. Even if the costs involved do take a long period of time to break even on, it can still make sense to refinance if you need a lower monthly payment.

There are also a large number of homeowners who find themselves in a situation where they do not have enough equity to qualify. In that situation the only thing you can do is work to build equity and hope the interest rates stay low long enough for you to take advantage of them.

With interest rates in the low 4’s, chances are it will make financial sense for you to refinance. Rates can’t get much lower – take some time to talk with your lender to investigate whether you can save hundreds each month and thousands over the life of your loan.

Your monthly mortgage payment is likely the highest bill you have to pay. What if you could find a way to reduce the amount you had to pay for your home – possibly by tens of thousands of dollars? There are some techniques you can employ to start saving on your mortgage today. In this article we’ll share 3 of the top ways to save a substantial amount over the life of your loan.

Savings Tip #1 – Refinance if you have a high interest rate. Today we are seeing historic lows in mortgage interest rates. If you can lock in a fixed mortgage at today’s rates of 4% you can save over $50,000 depending on your mortgage balance.

In order to qualify for a refinance you’ll need to have a good source of income, decent credit and some equity in your home. It’s worth taking some time to investigate your refinance options before interest rates begin to climb again. Financial experts agree that these low rates cannot last forever.

Savings Tip #2 – Pay your mortgage bi-weekly. This savings tip can save you approximately 7 years of payments if done consistently. Essentially you pay half of your monthly mortgage payments every two weeks. Because there are three months of the year where there are five weeks instead of four, by making a ½ payment every two weeks you will end up making an extra payment each year. While one extra payment doesn’t sound like a lot, it can actually shave tens of thousands of dollars off the total cost of your home.

The hard part about following a bi-weekly mortgage schedule are those months were you end up making an extra ½ payment. Be sure to budget well in advance for those extra payments so that you keep on track. If you can, set up automatic payments so you don’t have to think about paying your mortgage. Also, don’t be tempted to skip one of the extra payments – the key to this plan is being consistent.

Periodically ask the bank to send you a full statement of your mortgage so that you can verify that your extra payments are being applied directly to the principle. If you ever find that they aren’t, make sure to ask that the bank adjust their records.

Savings Tip #3 – Keep your remaining term when you refinance. Many times, when you refinance, they give you a new mortgage for 30 years. This lowers your payment but extends the time you’ll be paying on your home and ultimately tacks on years of interest payments. Instead, ask that you keep your remaining term when you refinance. That way, any difference in your payment will be due to the change in interest rate – not because you’re increasing the term of your loan.

By following a few of our simple tips you can shave tens of thousands of dollars off the amount you will end up paying for your home. Isn’t that money better invested in vacations, education or home improvements? Why spend unnecessary dollars on interest when it can be easily avoided?