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Money saving tips on home mortgage refinancing.

The steady downward trend in mortgage interest rates in recent years have undoubtedly presented many opportunities to lock in historically low rates. With the downward trend anticipated to continue for the foreseeable near future, there are bound to be more opportunities to refinance into a lower interest rate loan. This article offers a lesser known tip on how to profit from every drop in interest rate.

As any savvy borrower would know, refinancing into a like-kind mortgage product with lower interest rate can lower the monthly payment, but does not always translate into money saved over the lifetime of the new loan. The main reason is that the new loan will usually carry a longer term than the number of payments remaining on the original loan. This reset of payment schedule is what can drive the total cost for the new loan to be higher than the total payments remaining on the original loan!

If the objective is to reduce the monthly expense, then by all means, refinance into the new loan. However do so knowing that the monthly savings come at the expense of higher total cost.

If the monthly amount on the original loan is affordable, then there will always be money saved by refinancing into a lower interest rate loan and continue paying the same monthly amount as in the original loan. This strategy works if the new loan has no pre-payment penalties, no points, and no fees. By paying the same monthly as on the original loan, the additional amount is applied to the principle every month to effectively shorten the length of the new loan. There will always be money saved on this new loan when compared to the original loan. As an additional benefit, the new loan offers the option of paying the new lower monthly payment should the need ever arise. This would not be possible by staying with the original loan.

In conclusion, whenever the interest rate drops, refinancing to take advantage of the lower rate is always recommended as long as the new loan does not impose pre-payment penalties and has no points and no fees. The only downside may be the hassle involved during the loan application process. Whether it is to satisfy a need to reduce monthly expense or to save money over the lifetime of the loan, the benefit of refinancing to a lower interest rate will outweigh every bit of hassle.