When Should I Refinance?

Dave explains to a caller when he should consider refinancing his house.

QUESTION: Jason asks when it’s wise to refinance a mortgage.

ANSWER: You should refinance when you can save enough on the interest rate to pay for the closing costs before you move. 

If you have a $100,000 loan and you can save 1% a year by refinancing, you would save $1,000 a year.  If your closing costs are $4,000, it would be 4 years before you got your money back for doing the refinance. 

A good rule of thumb is to refinance only if you save at least 2% or more.  If it’s less than that, you’re only looking at a break-even situation.