Should I Refinance My Mortgage
Some people think that the rule of thumb is if you can lower your interest rate by at least 1% then it’s worth refinancing. Well, it’s not that simple. It depends on more than just interest rates. There are several factors that go into it and we’ll discuss them.
You first have to ask yourself how long you’re going to be living in the house. Sometimes you might not now exactly how long. But you have to have some idea, so that you can figure out if you are going to be living there past your break even point. It’s obviously not worth taking the time to go through a refinance and pay closing costs if you don’t even make it to the break even point.
To calculate your break even point, you will take your monthly savings (old payment-new payment) and divide that into the closing costs. For example: $1,000(old payment)–$800(new payment)=$200(savings); $5,000(closing costs)÷$200(savings)=25 months÷12=2.08 years(break even point). So in this example, if you are going to be living in your home for more than two years, it is worth the effort and cost to refinance.
If you only have say 15 years left on your mortgage, you may not want to refinance for a 30-year mortgage and start all over again. Unless of course your goal is to try and lower your monthly mortgage payment the most you possibly can. Some people opt to refinance so they can decrease the amount of time left to pay on their mortgage while keeping their monthly payment the same.
There are many reasons for refinancing. The best thing to do is talk with a qualified, reputable loan officer for a mortgage rate quote.