Don’t focus purely on interest rates

Getting the lowest interest rate is important, but if you lose sight of the total cost of your refinance, it can cost you big time. Even when you lower your interest rate, you can increase the total cost of your homeownership. It is important to consider the fact that, when you refinance, you restart the mortgage amortization process. Remember, at the beginning of a new loan the biggest portion of your payment goes towards interest. So, if you were to refinance your loan, say every five years, your payment is consumed by interest as opposed to principal. The net result is that your principal balance doesn’t decline as quickly. Better to refinance with a shorter-term mortgage than one with a lower interest rates to save on overall interest costs. You could cut your mortgage term by 10 or 15 years which is the best way to cut your overall mortgage costs.