One of the most important things to understand about mortgage refinancing is that it's not always a good idea. Some homeowners mistakenly assume that any refinance is a good refinance, because it almost always leads to lower interest rates and mortgage payments.
In truth, refinancing your mortgage at the wrong time can be a financial disaster that eliminates the equity you have in your home, leaving you with nothing gained. How long you've held your current mortgage is the key to all of this.
When you refinance a home, you need a certain period of time to recoup the cost of refinancing. This is often called the "break-even" point -- the point at which the money you've saved each month (with your lower interest rate) surpasses the cost of refinancing.
If you've been in the home for many years, there's a good chance you won't have enough monthly payments left to recoup your refinancing costs. This is especially true when there's not a huge difference between your previous interest rate and the (lower) refinanced interest rate. If the difference is small, you'll have to make the new payments for a longer period of time to reach the break-even point, at which you recoup your expenses.
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