Refinance Now or Later? Three Quick Questions to Help You Decide

1. Will I save money? Saving money is the fundamental reason behind refinancing. The basic rule of thumb is that if interest rates are between 1/2% and 5/8% lower than your current interest rate, it may be time to refinance.

There are numerous times when refinancing makes sense. For example, if you took out a first and second mortgage simultaneously to avoid the costly private mortgage insurance associated with a high LTV ratio, refinancing both mortgages into one standalone mortgage with an LTV ratio of less than 80% can save you money and secure a better rate.

Or, for example, if you’ve got major upcoming expenses such as college tuition, home repairs, or a new car, you may need the funds provided by a cash-out refinance. Cash-out refinances work like home equity loans, drawing on the equity that the home has accrued to pay off the balance of the mortgage as well as give you additional funds to use at your discretion.

However, bear in mind that not everyone qualifies for the lowest available rate. A lender looks at a number of factors, including credit scores and existing loan-to-value (LTV) ratios, so you may not be able to lock in a better interest rate automatically.

2. How long do I plan to keep my current home? While there’s no doubt that refinancing can save you money, it also comes with a caveat. If you’re planning to move within a few years, the closing costs associated with refinancing might not be realized through the amount of money you’ll save while you’re still living in your current home. The longer you plan to maintain your current residence, the better.

3. Can I break even? Determine your break-even point—exactly how long it will take you to recoup the costs of refinancing and realize the savings. This can be accomplished in minutes by using a refinancing calculator. You can find links to free calculators at Homemortgage-hq.com, your complete source for first, second, refinanced, and reverse mortgage information.