The answer to this question may be a little misleading at first. There are a lot of factors to consider when deciding if it is worth it for you to refinance your mortgage. Many people cite the “One percentage point” test to use as a rule of thumb, but that’s not always the case. It really depends on the amount left on your loan and the number of years left on your loan.
Assuming your loan has 13 years or less left, and you don’t owe that much (under $100,000 or so), it would probably not pay off to refinance. However, if your loan is larger (over $150,000), it may pay off in the long run to refinance. This type of loan is where the one percentage point test comes from. If you are going to cut one point or more off of your interest rate, than it may be profitable to refinance.
On the other hand, if you have a longer loan left, say 22 years or more, it’s probably not a good idea to refinance back up to 30 years. Fifteen-year loans generally run one-third of a point lower than 30 year loans. Even on a smaller loan, you may be able to save tens of thousands of dollars.
Also, if you’re cutting your interest rate, even just a little, a no-closing-cost loan can be very worthwhile, as long as there is no pre-payment penalty. Many lenders offer loans with no closing costs for a bump on the interest rate, but as long as that new rate is at least a quarter-point lower than your current rate, it’s probably a good idea.
Closing costs usually run from two to four thousand dollars, so if you have to pay them and are planning on moving within a few years, you will probably want to avoid refinancing. You should calculate how long it will take to recuperate any closing costs you have to pay. An online calculator can help you do that.
When you’re done crunching numbers and ready to refinance, call us toll free at (866) 854-4242, and we’ll help you on your way.
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