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I seem to get this question a lot these days and it is a question that has no simple answer. One easy way to approach it is to look at the interest savings relative to the costs.
On average it costs .75% or less plus appraisal to do it. Let’s be liberal on expenses and say 1%.
On a $400,000 mortgage that would be $4,000. So let’s say refinancing will reduce your interest rate .4%. In the short term that translates to roughly $133/ mo in savings. In this scenario you would break even in roughly 2.5 years then be making money after that. It is also important to remember that over time your mortgage payment will become less interest and more principal as you pay it down.
Another really important scenario is refinancing out of a low interest rate, adjustable rate mortgage into a fixed product. This may be a very smart move for someone who intends to stay in their current home for the long term but I think there is a case to do it under any circumstances in this wild market. Reason being, I think this market could change enough to change anyone’s plans, and having a long term, fixed rate mortgage at these levels may pay dividends if the market makes you stay put or rent out your current home.
There are many other scenarios, issues and things to consider from escrows, loan to value ratio, resetting amortization, plus all the effort to actually do the refinance. One thing for sure is if you are paying 3.5% or more, or have an adjustable rate mortgage, you should think about it and seek good advice. I am often surprised by folks who don’t explore it that can dramatically cut their expenses.
It is always best to seek mortgage advice from an experience mortgage broker.
Please reach out to me any time if you have any questions regarding the buying and selling process in today's market.
Chuck Mangold