How to Know When It's Time To Refinance

• October 17th 2012

by Shilpi Paul

With interest rates dipping to historic lows, many homeowners are likely thinking about refinancing their home mortgages.

So, how do you know when to pull the trigger? Some believe that a good measuring stick is to wait until mortgage rates have dropped 1 percent below the rate you locked in when you bought your home; others urge owners to balance the cost of refinancing — often as much as $7,000 — with how much they will save every month at the new rate. Mortgage consolidation and refinancing calculators like this one can also be helpful tools.

UrbanTurf reached out to Wells Fargo mortgage loan officer Matt Rexrode for some more advice on how to know when the time has come:

It really depends on the ultimate goal for a refinance. While some borrowers are refinancing into a new 30-year fixed mortgage to save the most money each month, many people these days are refinancing into a shorter term loan. While they may not see much, if any, monthly savings, they end up saving tens of thousands of dollar worth of mortgage interest over the life of their loan. If saving the most money each month is the goal, one should wait for rates to go down around 1 percent from their current rate. However, if you have a higher balance loan ($500,000 and up), it may be worth exploring a refinance with a rate that is around 0.75 percent lower. We’re seeing borrowers who are 2-3 years into their current mortgage, but do not want to start over again at 30 years. For those people, we end up doing a 27-28 year loan with a lower rate and they still may end up saving some money each month.

Those considering refinancing should also take into account the time they plan on living in the home. You can do a cost benefit analysis of the interest saved and/or reduced monthly payment versus the costs of doing a refinance and see how long it will take to make back the refinancing costs. In most cases, if someone plans on staying in their home another 3+ years, it’s worth having a conversation with a loan officer.

This article originally published at https://dc.urbanturf.com/articles/blog/how_to_know_when_its_time_to_refinance/6171.