When Does it Make Sense to Refinance My Mortgage?


Filed under: Market Comentary


Rates have dropped, so it is natural that I am hearing more questions about mortgage refinancing. I know that I’ve talked about this topic a few times recently, but it’s always a relevant topic in the industry. When does it make sense to refinance your mortgage?

Since I started in the mortgage industry, I’ve often heard it said that you shouldn’t refinance if you can’t drop your rate by at least 1%. But, that’s not always true. I’ve found that people have these metrics or rules in their head that may or may not be real.

Break-Even Analysis on Your Mortgage

Honestly, it’s pretty straightforward to decide if you should refinance, because the math is a break-even analysis. Refinancing will save you a certain amount of money every month. At the same time, it will cost you a certain amount of money to refinance. You just need to compare the savings with the total cost to identify your break-even point.

Individual factors will influence whether it makes sense for you to refinance — for example, the size of the loan matters. On larger loans, you can hit the break-even point with a minor drop in the interest rate. The savings will just get bigger the more you can cut down the interest rate.

Other Motivations for Refinancing

Of course, saving money isn’t the only motivation to refinance. You might consider other reasons, such as pulling out cash for home improvement projects. If your only motivation is for financial reasons, then I can assist with the break-even analysis to see if it is a smart decision for you to refinance. This analysis is very easy to do; all it takes is a mortgage statement, and then I can crunch the numbers to tell you what makes sense.

If you are thinking about refinancing, we’d love to help out. There are a lot of people sitting on the sidelines right now, and it might be a great idea to lock in the lower rates while they are available. Reach out to us any time if you are ready for a refinancing analysis to see if it’s a good time to restructure your home mortgage right now.


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