Federal Housing Administration (FHA) Rules

To refinance a FHA mortgage, one must have owned the home for at least six month before a refinance can be completed. This is to prevent mortgage fraud from intentionally undervaluing homes.

Closing Costs

It is always important to calculate the number of months that it takes to break even on the closing cost expense. To do this, divide the monthly savings by the total closing costs. It should take less than 24 months to break even.

Savings

To reduce the overall interest expense of the loan, a borrower should begin to consider refinancing if the going interest rate is more than 1% lower than the interest rate. A more than 2% difference in rate will produce quite the savings.

Tip

Instead of refinancing your mortgage to reduce the term from 30 to 15 years, create your own term by paying extra payments. For each extra payment made per year, a 30-year mortgage is reduced by 7 years.

Warning

Many borrowers refinance their mortgage to cash in the equity on their property to pay off other debt. Although this helps to lower the overall monthly expenditures, it makes the short-term debts into a long-term debt, therefore increasing the interest paid over the life of the mortgage.

Source

Refinancing Your Home