Refinancing : How do you know when it makes good financial sense?
I checked the interest rates yesterday, and it looks like the going rate is about 0.75% less than what I'm currently paying. How can I calculate if it's worth refinancing? Paying closing costs again sounds expensive, and if it's going to take years to recoup the difference, it might not make sense to do it now. Or would it? What's the average APR difference that would make it worth refinancing?
Answers ( 2 )
One way to avoid the uncertainty and complexity of trying to figure out if it's the right thing to do or not is to opt for a "no-cost refinance" -- this is a refinanced mortgage that charges a slightly higher interest rate, but doesn't charge you anything out of pocket to do so. As long as your new rate is lower than your current rate, it's a win!
And the better part is that you don't have to worry if the rate you got is the lowest possible -- if the no-cost refi rate drops after you lock in, you can just do it again for no cost. I owned a property and did this three times over four years as the rates dropped.
Mortgage refinancing is not all about rates. Before starting the refinance process, there are a few things to consider. It may not be a good idea if you plan to move in the next two years, for example, because it gives you little time to recoup the closing costs. Rates and credit score both affect your mortgage rate. If you expect your credit score to improve, you can increase your loan options by waiting to apply until your score rises.