Will refinancing be worth your while?
Refinancing can be worthwhile, but it does not make sense for every mortgage holder. A general rule is that refinancing becomes worth it to you if the current interest rate on your loan is at least 2 percentage points higher than the current mortgage interest rate. This rule is broadly accepted as the safe rule of thumb when juggling the costs of refinancing a mortgage against your potential savings. There are other considerations, too, such as how long you plan to stay in your 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 mortgage refinancing. Depending on your loan amount and the particular circumstances you might choose to refinance a loan that is only 1.5 percentage points higher than the current rate. You may discover that you are able to recoup the costs in a shorter time. If you want to shorten the term of your home loan it may not be necessary to refinance the mortgage. If you financed on a 30 year note when you purchased your home and have the cash on hand to pay an additional amount each month, you can pay down the principal on the loan faster by making additional payments.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
