Before Refinancing, Crunch Hidden Numbers

Homeowners have been on a refinancing binge in the past year, scrambling to get out of their adjustable rate mortgages and into fixed rate mortgage, or FRMs. Refinancing accounts for 43% of mortgage activity, while only 2.5% of new applications are for ARMs, according to the most recent Mortgage Bankers Association survey.

But refinancing isn't always the right move.

Here's why: Many homeowners refinance to take advantage of a lower rate or avoid an anticipated interest rate hike on their ARM. But refinancing can be costly. Closing costs average 2% to 4% of the loan amount, and it can take a while for the savings from lower monthly payments to pay back the upfront costs of refinancing. If you sell the house before you've had the chance to recoup those costs, refinancing was a bad idea. ...