Here are the top scenarios that might justify refinancing:
1. You can lower your interest rate by ~1% or more
- Many lenders suggest a 1%+ cut is worth it, even though traditional wisdom has held out for 2%—but 1% can still yield real savings
- Example: A $300,000 loan at 7% could drop your payment by $300+/month when refinanced to 6%, helping recoup costs in 12-18 months. Another way to look at it is that savings can cover other expenses or you invest it in a money market account or stocks, bonds or other investments instruments that can help you save for retirement.
2. You want to change your mortgage term
- Switching to a shorter-term refinances can significantly reduce total interest—but expect higher monthly payments
3. You’re switching from an adjustable-rate (ARM) to a fixed rate
- Locking in stability amidst economic uncertainty can be worth the trade-off
Watch for Costs & Consider Your Time Horizon
Refinancing has expenses—typically between $3500 and $4500. To know if it’s worth it:
- Calculate your break-even point: How many months until savings offset the costs? If it’s over 5 years, what else could you do with that money? Can you get our investment back in less than 12 months? Might be worth it.
- Factor in how long you’ll stay in the home. If plans change soon, savings may be dwarfed by fees.
Should You Refinance Now?
Yes, if:
- You can cut 1% or more off your rate
- You plan to stay in the home at least 2–3 years
- You want to switch to a fixed rate or shorten your term
- You have good enough credit and equity to qualify
No, or wait, if:
- Your current rate is low enough that fees outweigh savings
- You plan to move or refinance again soon
- Your credit has dropped significantly
Tips For Smart Refinancing
- Shop around—Rate isn’t the only thing you should consider. Ask about points and fees. You’ll get very different numbers from a mortgage bank, institutional lender or a mortgage broker (Hint: Brokers are Better)
- Talk to a professional—Schedule a call with me today!
- Time your refinance—being pre-approved allows you to act when rates dip.
Final Take
If you can save at least 1% in rate and you can recoup your costs in 6-12 months, you should consider that now’s a solid time to refinance. Even a small rate reduction can have a big impact over your loan’s life. If you’d like help running numbers, I’ve got your back!
