Is refinancing always the right decision? A chance to refinance always catches the borrower’s attention. The timing of your decision should be taken into consideration. There are a lot of do’s and don’ts, in refinance. One needs to understand when to refinance in order to make effective use of the lower mortgage rates.

There are borrowers who keep hopping from one refinance plan to another, and they can be called refinancing junkies. Multiple refinancing can reduce your overall financial benefit. Refinancing junkies who always migrate to the next low rate pay a hefty price by leaving a trail of closing costs in their wake.

Refinancing is not paying up all your loans, but only restructuring your loan.
Reducing the interest rate is the most reasons why people refinance. But some homeowners also like to extend the loan back 30 years again, and reduce the monthly payment.

Debt consolidation is another reason for refinancing. People have multiple loans at varied rates of interest. So taking one consolidated loan for lower interest and paying off the multiple loans, helps keep monthly loan payments down.

Most homeowners refinance because they want to get out of or get into adjustable-rate mortgage. Homeowners are attracted to ARM, because they are at a much lower interest rate than a 30-year fixed-rate mortgage.

Now you know why people like to refinance, but when to refinance is the big question.
Refinancing home loan makes sense if you plan to live in the house for a while. A few careful calculations would decide when to refinance and if it is a good idea after all.

You need to calculate how long it’ll take for your monthly savings to pay off the closing costs that you may incur by refinancing. First add up your closing costs and any additional penalties for preclosure. When you divide that number by the savings, from your new monthly mortgage payments, he result figure the number of months you are going to need even for a break even..

For example if your closing would cost $2,500 and refinancing lowers your monthly payments by $85, you will break even in about 29.4 months. Refinancing to break even after 2 and ½ years is clearly not a good idea.

If this doesn’t work some other refinancing scheme ma work you. Ask your loan officer and he will guide you on when to refinance. En with the plan above, if you know that your existing loan rate is about to sky rocket, then refinancing may be a good idea.