Refinancing your mortgage can be a smart financial move, but it’s not one-size-fits-all. If you’ve been wondering whether now is a good time to refinance, here are a few key factors to consider: interest rate changes, monthly savings, closing costs, and how long you plan to stay in your home.
How Much Should Rates Drop?
A good rule of thumb is that refinancing makes sense when you can reduce your mortgage rate by at least 0.5% to 1%. That might not sound like a lot, but even a half-point reduction can lead to meaningful savings over time, especially if you have a large loan balance or many years left on your mortgage.
For example, refinancing from 6% to 5% on a $300,000 loan over 30 years could save you about $188/month or nearly $67,750 over the life of the loan.
Monthly Savings vs. Closing Costs
Closing costs can run from $4,000-$6,000 depending on which state the property is in. In some cases, that can be reduced with a slightly higher interest rate.
The key is to compare your monthly savings to the closing costs and calculate your break-even point. For example, if refinancing saves you $200 per month and costs $6,000 in closing fees, your break-even point would be 30 months (or 2.5 years). After that, all your monthly savings are pure benefit.
Break-even formula: Closing costs ÷ Monthly savings = Months to break even
If you’re planning to stay in your home longer than that break-even point, refinancing could be a smart move.
How Long Will You Stay in Your Home?
This is one of the most important questions to ask. If you plan to move or sell your home before you reach the break-even point, refinancing probably doesn’t make sense. But if you’re staying put for the long haul, or even just 5-10 more years, it could help you build equity faster or free up cash for other goals.
Bottom Line
There’s no “perfect” time to refinance, but there might be a right time for you based on your rate, budget, and future plans. If interest rates have dropped since you closed on your current mortgage, it’s worth looking into the numbers. And we’re here to help you run those numbers.
We also offer a loan monitoring system. Regardless of whether or not we secured your last loan, we can monitor it for you free of charge.
Want to know if refinancing is the right move for your unique situation? Reach out today, and let’s talk it through.
