Not too many years ago it was very common to
hear that the rule of thumb was to refinance your mortgage if you
were reducing your current interest rate by more than two (2%)
percentage points. This was before color TV! That statement would
still be accurate today if the principle balances on mortgages were
still around $20,000. Unfortunately, for most of us, average
outstanding balances in today's environment are in excess of
$125,000 and higher. That will considerably alter your thinking.
Certainly you should first understand that there are NO general
rules of thumb. Everyone's goals and aspirations are different. The
larger your principal balance, the more of an impact a reduced
interest rate or term will have. The decision to refinance is
usually a mathematical calculation. Basically who you should do is
assess how much longer that you'll have your current mortgage. By
that we mean that you should analyze how many more payments that you
will make under your current personal status. Will you be moving in
the near future? Will you be retiring in the near future? What about
college or major medical expenses that are going to require that you
use the equity in your home. All you need to do is to calculate the
new monthly payment of your new mortgage (you can use the mortgage
payment calculator on our home page, be sure to verify the accuracy
of this calculation with your Mortgage Affiliates loan officer).
Then calculate the amount of your monthly savings. If you then
calculate the amount of costs to acquire the financing (not
including the escrows and pre-paid items), you can then divide the
amount of your monthly savings into the costs to acquire, you will
then know how many months it will take to break even. Now it's your
decision. There is no wrong decision. If it takes more than 15-18
moths to recover your costs and you're not quite sure that your
going to live in the home for 2 years, perhaps it would be better to
spend your money elsewhere
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