Tutorial - Refinance

Refinancing Here is what you will learn in this tutorial:1. What does "saving money" on a refinance mean? 2. What hazards must be avoided? 3. Determining whether or not you will save money: what is the "break-even" period? 4. How do you find the break-even period?This tutorial is for those who want to save money on their one existing mortgage. If you have a mortgage but need to raise cash, or if you now have two mortgages and want to consolidate, then this tutorial may not be relevant to your situation.What Does "Saving Money" on a Refinance Mean?Saving money means that over the period you will hold the mortgage, the total costs net of offsets will be lower on the new mortgage than on the existing one.The costs include a) Origination costs - points and other settlement costs, on the new mortgage only; b) Monthly payments of principal and interest, on both mortgages; and c) Lost interest on (a) and (b), also on both mortgages. Cost offsets on both mortgages are tax savings, and reduction in the loan balance.If the interest rate on the new mortgage is lower and there are no points or other settlement costs, the new mortgage will save you money, even if you pay it off after one month. However, a "no-cost" mortgage carries a higher rate. If you expect to have the new loan more than 3 or 4 years, you usually save more if you pay your own settlement costs rather than have the lender pay them in exchange for a higher rate.Most borrowers, therefore, ...