When is the Right Time to Refinance?

Refinancing replaces your current home mortgage with a new loan containing updated interest rates and term lengths. Generally, financial strategists recommend refinancing if you can lower your interest rate by at least 0.75% to 1.00%. However, you must evaluate the upfront closing costs:

“Refinancing closing fees typically range from 2% to 4% of the loan amount, covering appraisals, title insurance, and lender origination fees. If you plan to sell your home before reaching your break-even point, a refinance will lose you money.”

Calculating the Break-Even Point

To find your break-even point, divide the total closing costs by your monthly payment savings. For example, if refinancing costs $6,000 and saves you $200 per month, your break-even point is exactly 30 months. You must remain in the property for more than 2.5 years to recoup the initial setup charges.

🔗 Read more: The Smart Guide to Mortgage Refinancing