Question:
What situation makes sense to refinance? How long will I have to own the home to make up the cost of the refinance?
Answer:
With mortgage rates near historic lows, many homeowners are considering the benefits of refinancing their current home loans. So how do I tell if refinancing is the right option for me? 2 is the key factor that is used as a general rule of thumb in the mortgage industry. 2 being the number of percentage points you would need to save on the interest rate and 2 being the minimum number of years you would need to stay in the property afterwards to make the refinance worthwhile. However, one can still see significant savings with even a smaller 1% decrease in interest rate which would make this an attractive option considering the time you plan on staying in this home. Since one would incur additional closing costs with a refinance option (approximately 2.5% of the loan amount on average) one would need to analyze the monthly savings verse the expense to find a breakeven point. This would indicate whether the refinance option really works for your particular situation.
This answer was provided by Jeff Edwards of DHI Mortgage.
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