Rule of Thumb: When Is It Time to Refinance?

by UrbanTurf Staff

Rule of Thumb: When Is It Time to Refinance?: Figure 1

As long-term interest rates continue to drop, home owners with higher rates are seizing the opportunity to refinance their home.

But when does a homeowner know that it is the right time to refinance? An UrbanTurf reader recently wrote in with the following question:

“When should you start thinking about refinancing? Say, for instance, you have a 30-year loan at 5 percent. Is there conventional wisdom or a good refinancing calculator out there that says ‘if you can refinance at X.X% with $$$ of closing costs and X number of years left on the loan’, then you should do it?”

BB&T mortgage loan officer Matthew Rexrode offered up the following:

“A good measuring stick for when to refinance is to wait until rates are about 1 percent lower than your current rate. This can vary depending on your loan amount, though. If the balance on your loan is $150,000 or less, you probably want to wait until rates are a little more than 1 percent lower. If your loan balance is over $400,000, though, it’s worth looking into refinancing when rates are around 0.75 percent lower than your current rate.”

As for online calculators, Rexrode said that he uses the one on HomesLoanSocial.com, noting that it can give you a good sense as to when it is time to reach out to a loan professional to go over your options.

See other articles related to: rule of thumb, refinancing, mortgages, mortgage rates

This article originally published at http://dc.urbanturf.com/articles/blog/rule_of_thumb_when_it_is_time_to_refinance/3649


  1. Refinanced said at 6:22 pm on Monday June 13, 2011:
    Another consideration is whether you can lower your term -- i.e., go from a 30 year to a 20 year or a 15 year. Lower rates may partially offset the higher monthly cost. If you just take a 30 year that you are part way into and reset it to another 30 year you may end up paying more in interest over the life of the loan. The choice obviously depends on your refinance goals, though. Also, you want to consider how long you plan to stay.
  1. Whoa_now said at 7:38 pm on Monday June 13, 2011:
    What about PMI. Can you refinance on the thought of equity in the home has risen and remove PMI? For example, house was bought at 300,000, owner put down 30,000, owes 270,000-but has to pay PMI. House now is valued at 350000-Owner owes 270,000 equity is 80000. More than 20%-1)shouldn't this be enough for PMI to go away? 2)Would they even need to refinance, could they get the house appraised and then go back to the loan holder and say, we now have this much equity, please remove PMI?
  1. Izz said at 8:02 pm on Monday June 13, 2011:
    Whoa_now brings up a great question. I was curious about this too.
  1. Matt Rexrode said at 8:42 pm on Monday June 13, 2011:
    Good question! You should contact your mortgage servicer if that's the case and they can let you know what the terms are. If you have an FHA loan, though, closed since 2001, you have to keep that monthly mortgage insurance for at least 5 years from closing and when you get to at least 78% Loan-to-Value. FHA's cancelation is automatic.
  1. Josh Kotin said at 9:27 pm on Tuesday June 14, 2011:
    PenFed is currently covering all closing costs and has pretty solid rates on its 5/5 mortgage. It take awhile to do the calculations, but if you don’t have to pay closing costs, it makes the decision easier. I had a conventional 30-year fixed at 4 7/8 and will probably save $20k over 10 years (really saved in the first 5). And I locked at 3.5 and they’re down to 3.25 (bummer).
  1. roots said at 4:52 am on Wednesday June 15, 2011:
    what type of closing costs should we be looking at? i have about 275k left on my loan and if i refinance now i can probably go from 4.5 to 3.0%. some have said expect to pay about 3% of the loan which for me would be about 8k (which seems ridiculous IMO). for those who refinanced, is this 3% accurate? i hope not.

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