Deciding whether or not you should refinance your home mortgage depends upon several factors. It also depends upon whether you are looking to simply reduce your monthly payment or if you are hoping to save money in the long run.
To understand better, let's look at an example. If your original 30 years loan was for $250,000.00 with a 5.000% interest, and you have already paid on it for 60 months, it will reduce your monthly payment if you refinance for a new 30 years period but with a 4.500% interest rate.
If your Federal tax rate is 26.000% and your state tax rate is 5.000%, you were probably paying $1,342.05 per month toward your home. When you refinance at the new rate, you will pay $1,163.21 instead, but your tax benefits will also be affected by this change.
The bottom line is:
- you will lose $1,492.06 on tax savings (lesser tax benefit is worse)
- your remaining balance will be $5,917.74 bigger because you will pay less toward your mortgage principal (bigger principal is worse)
- closing your refinancing process will cost you $3,495.72
Summing up these numbers, we can figure out your total refinancing LOSSES, which will be $174.68.