When is refinancing a preferable option to help reduce debt?
Certainly in this low-interest rate environment, refinancing might be an attractive option. With the Fed signaling low interest rates on the Fed Funds for an extended period, home equity lines might also be attractive. (Home equity lines are based on the prime rate which, is pegged to the Fed Funds rate.) Jumbo rates (those over the conventional amount of generally $417,000) have still not come down as much as conventional rates, so there is the possibility of combining a conventional mortgage with a home equity loan to avoid the higher-cost jumbo loan. Generally, refinancing is preferable for those homeowners intending to stay in their homes for several years, as it typically takes a couple of years to recuperate the costs of refinancing — typically one to two percent of the amount borrowed. Also, if the mortgage is close to being paid off then the interest savings may not outweigh the cost of refinancing. For those considering refinancing, it is best to sit down with your investment
