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Lisa E | If a mortgage rate is currently at 6.2%, when is it appropriate to refinance for a lower interest rate? |
Additional Details
Thank you for the information. My loan is for a fixed 30 year loan. I have had the home for almost 5 years. I have refinanced already 1 time, to get the 8% rate down to 6.2%. I only own currently $70,000. Help!
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davidg32
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The traditional rule of thumb is that the new rate must be two percent below your current rate to make it worthwhile and cost-effective. (And that's with everything else comparable, of course...not adjustable rate vs. fixed rate, for example.) |
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kokopelli
|
All things being equal, you need a 2 percentage point drop in the rate to make it worthwhile.
One percentage point is not enough. I was involved in loan originations for quite a few years and that is what we used as a guideline when advising people whether or not it would be to their advantage to refinance. You need this much of a rate reduction to offset the fees and costs of closing. |
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Mike
|
I think you need a 1 point decrease.
BUT it really depends on the fees.
Lets say you owe 100k on your mortgage. If you save 1 percent on interest, you are saving $1,000.00 per year.
If closing costs on a refi are $2,000.00, it will take 2 years to break even on your refi.
If it will take more then 2 years to break even, it probably is not worth it unless you plan on staying in the home for a VERY long time.
Also, DO NOT cash out your equity. |
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SDS
 |
When its at leats a point below your current rate. |
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Spaced at the Beach
 |
It's like playing the stock market! Your best chance at looking at refinancing is to really take a look at all of the sets of fees involved in a mortgage -- your interest rate, length of loan, PMI, points, etc. If all of these are the same, you'll need to determine the closing costs (which can be obtained by calling a title company). Then, figure this number into your equation to find out how long it will take to you re-coop this money versus what you are saving from the refinance. |
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Jonathan B
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Depends on dollar amount, closing costs (whether rolled into the new loan or not), and new rate. If you're not getting 1% better, not paying any points, and planning on staying for less than 5 years, then I'm guessing it's not worth it. . . . |
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hollywoodmelody
|
Not at this time or anywhere in the near future. Your best bet is to wait until the creative financing that got everyone into this mess is solved. It won't be solved by our government because they didn't cause the problems we are seeing. It has to be solved by the industry itself and that won't be anytime soon. |
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Expert Realtor
 |
You are in the best shape that you can possibly be in, and CONGRATULATIONS on the smart financial move.
I wouldn't refinance again until you can get a FIXED 5% rate or better, or, another thing that you can do is start kicking more money every month toward the principal and pay it off faster. |
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PSF11
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The rule of thumb is a 2% drop, but you also have to consider how long you're going to stay in your house. Even if it's a 3% drop and you move in a year, it's not worth the settlement charges to do it. |
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jmaat1
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It depends on how good of an interest rate you will be able to get.
If the cost of the new (refinanced loan) is cheaper after the loan fees than the old loan - then you should refinance.
You refinance when you think the breakeven point is met.
For example: You have a $1,000 mortgage right now. By refinancing at a lower interest rate, the bank calculates that you will save $100 a month. However the loan fees will be $3,000 to take out this new loan. You would refinance if the time you intend to keep the mortgage is longer than the breakeven point. In this example 30 months.
30 months x $100 month savings = $3,000 (the cost of the loan fees, any time longer you would be saving 100 per month) |
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Shane Milne
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From all the answers I've read here I like Spaced at the Beach's the best. You need to look at the big picture, which when you are refinancing for a better rate or term ("rate or term refinance" is the is the industry jargon for refinancing when not taking cash out)... is the refinance going to save you money over the time you plan on having the loan for? It's not a simple formula, it take a look at several aspects: without refinancing, what is the currently scheduled principal amount going to be vs. that amount if you refinanced into a new mortgage? What are the closing costs? Are you paying them out of pocket at closing or is the new loan amount being increased to cover those closing costs? Is the new term of the mortgage the same or less amount as your remaining term on your current mortgage, or are you extending the term out? What is the new payment vs. the old payment? All are items that have to be considered... there is no magic "must be 1% lower", etc. because no one except for you and your mortgage professional and or financial planner will be able to determine that since it involves a discussion about your goals with the mortgage. If you don't know what you want in a refinance, then just stay put, you wouldn't want to make an ill-informed decision. |
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KillerKat
 |
You can refinance at any time. Verify with your mortgage agreement that there is no prepayment penalty. Sometimes mortgage companies will lock you in for a year or two to discourage refinancing. That type of agreement is usually for a set period of time. Secondly, see if the new mortgage requires points. Each point is usually worth $1,000. You have to amortize the loan amount over the number of months and multiply by 6.2% to see how much you pay monthly in interest. Do the same thing with the new interest rate and that should be the difference in savings. As soon as that difference reaches $1,000, that's where savings come in.
You can use mortgage caluclators on Yahoo to help you figure out the monthly difference. |
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onceisenoughilearnedmylesson
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I've always heard it's worth refinancing when it goes down 2 points or more, so if it's 6.2, then 4.2 or lower would be the time to do it. |
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Eagles Fly
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That would depend on what your interest rate is now and the present rate.
I guess we're talking timing here.
Heard today, they're "thinking" about a possible drop in interest rates. But who's to know. Saying and doing are two different things.
I suppose If I say do it now, then the interest rate will go down and you'll have already signed on the line.
Right now it's like playing the stock market.
We refinanced when interest rate was lowest 5. something. I consider ourselves very lucky.
Damned if you do, damned if you don't.
But did hear possible drop and I think that's due to all the foreclosures because those people weren't told the truth or given the chance to think. Well, those who were responsible are being fired left and right. So things may change.
That's all I can say about the whole darn mess. Maybe watch and wait. |
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kermit_frog_rocks
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Maintain good status with your mortgagee for at least a year then negotiate. If your credit is good, then shop around. 6.2 is a high rate. |
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Mike
 |
If your rate is locked in don't re-fi right now. Make sure you have enough equity before even considering it. |
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natalie
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as long as you have 6.2 on 30 year fixed it doesn't make sense right now to refinance. If it's 2/28 or 3/27 coming due then Yes. You might not get even 6.2 on 30 year fixed right now the way market is going. |
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Morgan M
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My personal magic number is 5 points, this will usually cover your costs. |
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papp1chu
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I am a mortgage broker, first think you got to think is what is the need for you to refinance, do you want cash out, your term is not fix for 30 years and want to lock a low rate before yours becomes ajustable and the payment benefit that you are going to get by refinancing. if you do decide to refinance check the APR of the new loan because it might be higher than the rate you curently have after the cost of the loan is added and might not be beneficial to you. good luck |
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