Refinancing For a Lower Rate?

What is the rule of thumb on refinancing your home?

QUESTION: Mary Ellen asks if she should refinance from a 5.5% rate to 4.75% on a 15-year fixed mortgage.

ANSWER: If you can get a lower rate you should go ahead and refinance.  Just make sure the 4.75% rate is not an adjustable rate mortgage (ARM).  You would not want to do that. 

If you’re going to stay in the home and you can save enough on the interest rate to pay back the refinancing closing costs within a couple years, then you should refinance.  Find out what your closing costs are, find out what you will save with the lower rate, and determine if it’s worth it.  It doesn’t make sense if you’re not going to stay in the house or if it’s going to take 10 years to get your closing costs back.