Is refinancing worth it?
Refinancing can be worthwhile, but it does not make good financial sense for everyone. A general rule of thumb is that refinancing becomes worth your while if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate. This figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings. There are other considerations, too, such as how long you plan to stay in the house. Most sources say that it takes at least three years to realize fully the savings from a lower interest rate, given the costs of the refinancing. (Depending on your loan amount and the particular circumstances, however, you might choose to refinance a loan that is only 1.5 percentage points higher than the current rate. You may even find you could recoup the refinancing costs in a shorter time.) This information is adapted from “A Consumer’s Guide to Mortgage Refinancing,” published by the Federal Reserve Board
Refinancing can be worthwhile but is not suitable for everyone, as a general rule of the thumb refinancing can be worthwhile if the current interest rate on your mortgage is at least 2% higher then that of the current market rate. The 2% figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings. There are many further considerations to take into account, such as how long you plan to stay resident in the property. Most sources and lenders say that it takes at least three to four years to realize fully the savings from a lower interest rate, given the possible costs of refinancing your property. Refinancing can be suitable for those who want to take advantage of lower interest rates rather then facing mounting interest costs from a higher rate, the fees from refinancing will phase out over a longer time span which is why this is suitable for persons looking to spend more then 5 years at their current property. Building equity i
Refinancing is always an option, but it does not always make good financial sense for everyone. When does refinancing make sense? This answer depends on how long it will take you to get back the money you spend on refinance costs with the savings in your monthly payments. To figure this out you need to know your current rate and the rate at which you would refinance. There is a “two-point” guideline that has been the main school of thought for a long time. It assumes that refinancing becomes worthwhile if your refinance rate is at least 2 percentage points below your current rate. This may be an acceptable starting point, but don’t use this as your steadfast rule. Virtually all refinances at a lower rate will pay for your refinance costs eventually. The questions become: • How soon do you want to realize this savings? • Will you realize these savings before you expect to purchase another home? If you expect to live in your home for another three to five years, the two-point rule genera
Refinancing costs money. Like buying a new home, there are points and fees to consider. Depending on the program, it could take up to three years to recoup the costs of refinancing your loan. If your interest rate is high, it may be smart to refinance to lower your interest rate even if it is for the short term. Check your current note to see if you have mortgage has a prepayment penalty. A pre-payment penalty is another cost you may incur. Use the reasons above as a guideline and determine whether or not refinancing is the right thing to do.
