When to Refinance
How to Determine the Right Time to Refinance
Refinancing can save you money, but timing is critical. The decision to refinance depends on several factors, including current interest rates, your financial goals, and how long you plan to stay in your home.
When Interest Rates Drop
If interest rates fall 1% to 2% below your current mortgage rate, refinancing may help lower your monthly payment and reduce total interest over the loan’s lifetime.
When Your Credit Score Improves
If your credit score has improved significantly since you took out your original mortgage, you may qualify for better rates and terms, making refinancing a smart move.
Switching from Adjustable to Fixed-Rate Mortgage
Refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage can provide stability, especially if you expect interest rates to rise in the future.
How Long Should You Stay After Refinancing?
It typically takes 2 to 5 years to break even on refinancing costs. If you plan to move soon, refinancing may not be the best financial decision.
Costs of Refinancing
Refinancing costs generally range from 2% to 5% of the loan amount. Common fees include:
- Appraisal Fees: $300 to $500 for a home appraisal.
- Lender Fees: Origination or discount points to secure a lower rate.
- Closing Costs: Includes title fees, escrow fees, and recording fees.
