Refinancing a mortgage isn't just about making a lower monthly payment, according to Bankrate.com.
Consumers who can handle making the same monthly payment or a slightly bigger one should consider reducing the length of their mortgage, according to the article.
Chris Noke, a resident of Manhattan in New York City, recently refinanced his 30-year fixed mortgage of $315,000 at 5.75 percent to a 20-year fixed-rate mortgage at 3.625 percent. His monthly payments went from $1,838.25 to $1,847.17, a difference of less than $9, but he eliminated eight years of interest, according to the article.
If Hoke would've refinanced into a 30-year loan, his interest rate would have been around 4 percent and his monthly payment would've been $1,503 a month, according to Bankrate.com. He would've saved $300 a month but his overall interest would've been higher over the duration of the loan.
Consumers who have two mortgages that are worth less than 80 percent of the value of their home can try a cash-out refinance to pay off the second mortgage, according to the article. Monthly payments will rise but if the prime rate goes up in a few years, consumers who merged their mortgages will benefit.