That is a question that comes around most anytime. It is a very predictable question, and an important question to your personal finance. If you have a mortgage and interest rates are falling, should you refinance? How about when interest rates are rising and you know yours is higher than the current rate? How about when interest rates are stable but you have an adjustable rate and you no longer like the risk attached to it? Yes. All these times could be good times to refinance.
Each situation is a little different but here are some guidelines to help you decide.
- Your break-even point. You can calculate whether it is a good idea to refinance by calculating the break even point. That is the time it will take, in months, to start saving money. Let’s say you can reduce your overall payment by $100 a month and the fees to refinance are $2500. You will start saving money in 25 months. (2500 divided by 100) Will you still be in the same house 25 months from now? If so, then it may make sense to refinance. You will have to play around with the rates that you think you can get and see what that ‘savings’ might be. Below is a nice calculator you can use. Bookmark this post- Should I refinance, now, so you can come back to run the numbers whenever you need to.
- Another aspect of refinancing to consider is that most people add years to the loan. They go from a loan that was down from 30 years to 25 and then refinance back to a 30. Is this smart? Well , maybe not. But you can pay off a loan in whatever years you want, just add more to each monthly payment. I better way would be to refinance to a 15 year fixed. That is the very best mortgage loan you can get, short of not having one. You will gain equity faster and pay much less interest.
- Bankrate.com is a good website to investigate rates.
You may be thinking with all that is happening with today’s rates, you’d better jump in now. I would say, take a breath, and see what is happening. Nothing big is going to happen anytime soon, in either direction. The key is, if you are sitting on an adjustable rate loan, now is the time to correct that mistake. Get a fixed rate 15 year ( if you can afford it) and then set out to pay it off.
Do you have comments to this whole refinance issue? Leave a comment here so we can all benefit from your experience. If you liked this post, consider letting others know. I am trying to get more exposure for my blog and you can help me if you will. Thanks for reading.