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  • When Should I Refinance?

    When Should You RefinanceLately, rates have been hovering around all-time lows that you'd be crazy not to be enticed by them. Even homeowners who refinanced last year and refinancing again to save even more money on their home loan, and it may be worth it for you to take advantage of the current rates and refinance too. But when is it beneficial for you to refinance? While refinancing has the potential to lower your monthly payments, saving homeowners money, it also is not beneficial for everyone.

    How To Decide If You Should Refinance:

    The old rule for deciding if you should refinance was that if your interest rate would be lowered at least 2 percentage points by refinancing, then it was worth it. However, that no longer is sound advice to stand on. To decide if you should refinance, ask yourself these two questions:

    1. How long will it take you to break even?
    2. How long do you plan on staying in your home?

    Here's a great example: let's say you have a $200,000 30-year mortgage with an interest rate of 8%. Your monthly payments would be around $1468. Now let's say you decide to refinance your mortgage and now have a 6% interest rate. Your monthly payments would lower to $1199, giving you a monthly savings of $269! However, your closing costs came to about $2000 from refinancing. It will take you 8 months to break even ($269 x 8 = $2152), which means that if you planned on staying in your home for longer than 8 months after refinancing, it would be worth it to refinance.

    Ultimately, by understanding the amount of time it will take for your overall savings to compensate for the cost of refinancing, you'll have a better handle on knowing if it's beneficial for you to refinance.

    Jun 4 2012