Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it's never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance, you might be able to lower your interest rate and monthly payment -- sometimes significantly. You might also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation -- whatever! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

All these benefits do cost something, though. When you refinance, you're paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender's title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We'll help you figure it out.

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We'll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.

Should We Refinance?

Knowing when and when not to refinance your manufactured home mortgage can save you thousands of dollars.

Dear MobileHomeLoan.biz,

We’ve been thinking about refinancing our manufactured home's mortgage because the rates have been so good. Now that rates are moving back up, should we still go ahead?

- Nicole, Los Angeles, CA

Dear Nicole, There’s a lot of confusion about when is the best time to refinance a mobile home loan. Folks like you have been flooded with offers that promise to substantially lower your monthly payments and, with the economy still in a slump, that can be pretty enticing.

Are You a Good Candidate for Refinancing?

Generally speaking, unless you can lower your current interest rate (APR or annual percentage rate) by 1 point, it’s not worth your time or money to refinance.

If you’re not planning on staying in the house for many more years, it could actually cost you more if you re-fi now. Census data shows that around half of all homeowners move about every 8 years. Having some idea of how long you’ll stay will help you in determining how long it will take to recover the costs of refinancing. Add up all your fees (like points and closing costs) and divide that total by the amount you expect to save each month. The answer will be the number of months it will take you to recoup your costs.

A Fool and His Money Are Soon Parted

Don’t be mislead by the promise of “No Out of Pocket Costs” or “No Upfront Costs”. That just means they add all the costs to the loan amount instead of asking you to pay them upfront. This marketing gimmick can actually end up costing you more than just paying fees at the time of closing because you pay interest on what can be thousands of dollars in fees.

Remember that mortgage companies are NOT competing to lend you money so that you save a lot of money every month. They want your loan because it’s incredibly lucrative for them even in what seems like a sweet deal to you.

I would strongly discourage anyone from ever getting an “Interest Only” loan. People are attracted to the low payments but this just encourages many to continue living beyond their means. Imagine 5 or 10 years of paying on a loan and you still haven’t paid one cent toward the principle?

In my experience, buying down a loan (paying a fee to get a better interest rate) is not a good gamble. Personally speaking, I have refinanced twice in the last 5 years only because my existing mortgage lender offered to refinance our loan without charging us a dime. They didn’t just roll the costs into the loan, but actually paid all the costs themselves in order to keep our business in a competitive market. You might approach your lender and ask what they can offer before you go shopping for a loan.

Do NOT Pass Go, Do NOT Collect $100

Remember getting sent to jail in Monopoly? A mortgage is like paying on a 30 year sentence before you gain your “freedom”. If you’re like most people, you have a 30 years mortgage or 360 payments in all. If you refinance again and again, you start the clock back at 30 years if you choose a 30 year term.

! This is the key point here so pay close attention to what follows...

Unless you are a skilled numbers person, you are probably totally confused by amortization schedules. But you really don’t need any special skills or calculators to see why lenders want your business so much. Follow closely:

Here’s an example that you can plug your own numbers into. This example assumes that, like most people, you will make your scheduled monthly payment but not more than what is due.

Let’s say you first bought your house 5 years ago and took out a loan for $150,000. Now say you’re monthly payment is $1,000. On a 30 year term that means you have 360 payments or $360,000 before the loan is paid off. So after 5 years (which is 60 months at $1,000 per month) you have paid $60,000.

Now, after 5 years, interest rates have come down and you decide to refinance. You could now get a lower rate and only pay $850 a month (! This is the point that lures you in because you think, “If I can save $150 every month I’d have almost $2,000 in my pocket by the end of each year!)

So you now have 30 more years (or 360 payments at $850 a month) or $306,000 to pay off the new loan. But, remember, you have already paid $60,000 on your earlier loan. Add them up and you’re now paying $366,000 in all because you were sure that refinancing was going to save you money. The result is that financing in a situation like this would not only cost you thousands in points or fees but another $6,000 in interest over the life of your loan.

How do you end up paying more? Because you’re borrowing the money longer and that extra $6,000 in interest adds up. Remember, that does not take into account the thousands of dollars it may cost you to get your new loan in the first place. You may also use the formula above and discover that refinancing truly will save you money in the long run. Either way, this should help clear up a lot of your confusion.

Every situation is unique and I hope this helps you do your homework before jumping in with both feet. Here are some tools that you will find helpful in making your decision: http://www.bankrate.com/brm/rate/refi_home.asp