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When to Refinance Your Mortgage

Are you considering taking advantage of today’s lowest refinance rates to lower your payments? Should I refinance my mortgage is a good question to ask; however, there is a lot of bad financial advice on the Internet. One particular nugget of bad advice is the so-called two-percent rule of mortgage refinancing, which also turns up from time to time as the one-percent rule. This rule basically states that you should not considering mortgage refinancing unless the mortgage refinance rates you qualify are a full two percent (sometimes one percent) lower than what you’ve already got. Here’s an article on MortgageLoan.com recommending the one-percent rule:

When is it a good idea to refinance your mortgage? Should you take advantage of the historically low interest rates now available, or are there hazards to be leery of? The general rule of thumb is that refinancing is worthwhile if you can reduce your interest rate by a full percentage point or more. But that’s only a very rough guide – for some borrowers, a reduction of only half a percent may still produce significant savings, particularly if it’s a large mortgage. And the interest rate is only one factor to consider when refinancing.

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One size fits all rarely works for anyone and the same is true when answering the question “should I refinance my mortgage?” Instead of relying on a blanket, one or two-percent to base your decision when to refinance your mortgage, it makes more sense to base it on cost vs. savings. You can figure this out by adding up all the fees and closing costs you’ll be required to pay to get that low refinance rate and divide by the amount you’re saving each month.

This will tell you the number of months that it’s going to take to recoup your expenses from your mortgage refi. If the amount of time is acceptable to you them mortgage refinancing probably makes sense.

You can learn more about reducing your out-of-pocket expenses by avoiding lender junk fees by checking out my free Underground Mortgage Videos.

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