When Does Refinancing Make Sense?
Refinancing replaces your existing mortgage with a new loan, ideally at a lower interest rate. The general rule is that refinancing makes sense when you can reduce your rate by at least 0.5-1% and plan to stay in the home long enough to recoup closing costs.
Refinance Savings Formula
Frequently Asked Questions
What is a good refinance rate compared to my current rate?
A rate reduction of 0.75-1% or more typically makes refinancing worthwhile. However, even a 0.5% reduction can save significantly on large loan balances, especially if closing costs are low.
Should I refinance to a shorter term?
Refinancing from 30 years to 15 years increases your monthly payment but dramatically reduces total interest paid. If you can comfortably afford the higher payment, this builds equity much faster.
What are typical refinance closing costs?
Closing costs typically range from 2-5% of the loan amount. This includes appraisal fees, origination fees, title insurance, and other charges. Some lenders offer "no-closing-cost" refinances with a slightly higher rate.