Refinance on a home. When to do it? (1 Viewer)

[Shayne Judge]

Ok, any idea on the general rule for when its a good idea to refinance your home? My understanding is that its at a 1 point difference in the interest rate. Is this true? I would think that the fees and how long you plan on owning the house would play a major factor as well.

My stats:
Interest Rate: 7% on a biweekly. My bank (which I will refinance with) is offerring 6.125% atm
Lived in the home for 9 months
Plan on living in the house for 5-7 years
Unknown fees (My federal credit generally has unbelievably low fees, at least, they did when I first financed the home)

 

[Scott Merryfield]

The answer is different depending on the circumstances, but generally you need to figure out how many months savings on the new loan will be required to "pay" for the refinancing fees. Many mortgage companies are now doing very low cost refinancings. We refinanced our home a few months ago at 6.25%, 30 year fixed rate, zero points and about $400 in closing costs. Our old rate was 7.125%, and we saved about $150 per month. Therefore the payback was less than 3 months, so the decision was easy. Yes, the length of the loan was extended, but we do not plan to be in this home in 25-30 years anyway to pay it off.

When we refinanced at the 7.125% rate a few years ago, I never thought rates would drop low enough to do it again. Happily, I was wrong.

Do not just limit yourself to checking with your bank for refinancing options. Shop around for the best deal. If you can save 1% and plan to be there for 5-7 years, you probably should refinance.