As interest rates drop, home owners and investors alike pay attention. As a home owner, you know your monthly mortgage payment, you know your interest rate, and you remember, all too well, the closing costs and miscellaneous expenses involved with securing your mortgage.  Yet, when surrounded by market conditions that lead to declining interest rates, we must all weigh the benefits with the costs and how those decreasing interest rates affect us.

The sluggish economic conditions that may surround declining interest rates are of concern, in that job security or portfolio investment returns may be less certain. Yet, when refinancing mortgages, if the upfront costs of mortgage refinance do not out way the midterm benefits of money saved each month due to lower mortgage payments,  then by all means read further and explore if a mortgage refinance will increase your cash flow by reducing your mortgage payments and freeing up more disposable income.

Many financial institutions recommend, as a general rule of thumb, that if interest rates fall 2 or more percentage points below your existing home mortgage, it is worth researching further and consider mortgage refinance. However, this is not recommended and readers are encouraged to see that more as a financial urban myth of the days of old. Today, there are many different types of mortgage refinance loans; middle income families have much more complex investment portfolios today, and have become financially savvy by being creative and juggling a number of different types of loans and cash-producing investments, both short term and long term. Also, unfortunately, many have become victim to credit card lending and practices that have escalated interest expense for an average of 8-10% for decades now.

These are the critical factors regarding refinancing home loans for you to consider:
1. Current Interest Rage
2. Interest Rate of Your Mortgage
3. How Many Years are Left on Your Existing Mortgage?
4. How Long Do You Plan to Keep the New Mortgage?
5. Explore the Different Ways Banks are Competing to Lower Closing Costs
6. Does Your Current Policy Have a Prepayment Penalty?

Once you’ve thought through these basic concepts and jotted down a few notes for yourself about refinancing your home mortgage, you will have a relatively clear notion of how this will affect your cash flow and if it will generate additional cash flow from the monthly savings. At this point, an online financial or mortgage calculator might be helpful to run a few financial scenarios and speak with loan officer about refinancing.

Note: If the value of your currency is decreasing at a historically unusual rate as compared to benchmark currencies, consider factoring in the current and future value of money. A calculator may walk you through this or you may ask your financial advisor to go over it with you.

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