In this week's installment of UrbanTurf Reader Asks, a reader who is considering refinancing wonders what the margin of difference should be between an owner's actual interest rate and a potential refinanced interest rate to justify the refinancing costs. We asked Prosperity Mortgage's Tom O'Keefe to weigh in with his thoughts.
I bought a house in DC in June. The rate on my mortgage is 4.875. At the time it seemed like an incredibly low rate, but as interest rates continue to plummet, my question is this:
How big does the difference have to be between one's actual interest rate and a potential refinanced interest rate in order for it to be worth the costs to refinance?
Answer: In most cases, it boils down to the "break even" point. In other words, take the total cost of the refinance and divide it by the proposed monthly savings. If the break even is less or near the timeframe the borrower plans on owning the home, a refinance probably does not make sense. For example, if the total cost of the refinance is $7,000, and it will result in $80 a month in savings, the break even point is 86 months or just over 7 years out.
On the other hand, if the borrower plans on owning the property well past the break even point even a small reduction in rate may be a good idea.
If you would like to submit a question for UrbanTurf Reader Asks, send an email to email@example.com.
This article originally published at https://dc.urbanturf.com/articles/blog/urbanturf_reader_asks_when_does_it_make_sense_to_refinance/2460.
Most Popular... This Week • Last 30 Days • Ever
This week’s Best New Listings includes a custom condo in downtown DC, a one-story h... read »
Why condo fees are high in some buildings and low in others can be a difficult questi... read »
When sellers haven't quite lined up their next house before their settlement date com... read »
In this edition of First-Timer Primer, we look into the question of how to determine ... read »
The preferred mortgage product among most home buyers is the fixed-rate mortgage. How... read »
UrbanTurf has compiled virtual looks at large new developments around the DC region.... read »
Virginia's homebuyer assistance programs can seem complex. This edition of First-Time... read »
A recent transaction shows that the housing market isn't cooling off everywhere.... read »
Developer Akridge has released new images of their planned Burnham Place development ... read »
The new development will also have a nearly 20,000 square-foot public plaza.... read »
With this weekend's DC houseboat tour a day away, UrbanTurf thought it only fitting t... read »
President Obama travels to Denver this morning to sign the stimulus bill that has bee... read »
In this week's installment of Ask An Agent, a reader wonders if there is a rule for h... read »
As The Wharf prepares to begin construction, DC's houseboat community heads to its ne... read »
In this week's installment of Ask An Agent, a reader asks a fairly common question th... read »
DC Real Estate Guides
Short guides to navigating the DC-area real estate market
We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!
Intro guides for first-time home buyers
Awesome and unusual real estate from across the DC Metro