A drop in interest rates will attract the attention of both investors and home owners. Those with mortgages understand all too well the relationship between interest rates and monthly payments. As rates fall, home owners will be prompted to evaluate the costs of refinancing versus the benefits over time.

Interest rate reductions during an economic downturn may point to a loss in investment returns. However, these declines may lead to an increase in disposable income for people with mortgages. Mortgages may be refinanced to free up more of each month's income for other purchases. The caveat is that before refinancing a borrower must make sure that any fees for refinancing don't eat away all the monthly savings of the lower interest rate.

We advise against the standard recommendation that any drop of 2 or more points in the interest rate warrants refinancing a mortgage. Though this has been a long standing consideration, recent changes in options and the borrower mean it is no longer appropriate. Those with debt who have comfortable incomes hold a wider variety of investments and are more pro-active in effectively dealing in multiple monetary tools to maximize their returns. These investors can also relate long and short term needs to different products. The area where these borrowers have not maximized their performance is in the use of ever increasingly expensive credit card usage over recent decades.

Critical factors to consider when refinancing a home loan:
1. Current interest rate being offered.
2. Interest rate of your current mortgage.
3. The number of years remaining on your current mortgage.
4. Does your current mortgage have an early pay off penalty?
5. The number of years you plan on keeping your new mortgage.
6. Research banks competing to lower closing costs.

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.

Ron Finkelstein is NOT a Real Estate Attorney, Accountant or Mortgage Broker. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about The Mortgage-Refinancing Question,
When an Interest Only Loan is Right For You. Distributed by Free Reprint Articles Directory

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