As a general rule how much less would interest rates need to be before it became a good idea to refinance? Lets also assume that you've had the existing loan for somewhere between 2-5 years.
2006-09-13 07:55:59 · 8 answers · asked by Tower of T 2 in Business & Finance ➔ Personal Finance
You'll get lots of different answers.
But it doesn't matter how long you've had the existing loan. All that matters is the "business case" for the new loan.
2006-09-13 07:58:25 · answer #1 · answered by AngiesHusband 5 · 0⤊ 0⤋
Refinancing can be worthwhile, but it does not make good financial sense for everyone. A general rule of thumb is that refinancing becomes worth your while if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate. This figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings. There are other considerations, too, such as how long you plan to stay in the house. Most sources say that it takes at least three years to realize fully the savings from a lower interest rate, given the costs of the refinancing.
(Depending on your loan amount and the particular circumstances, however, you might choose to refinance a loan that is only 1.5 percentage points higher than the current rate. You may even find you could recoup the refinancing costs in a shorter time.)
2006-09-13 15:00:23 · answer #2 · answered by MrsDiaz 2 · 0⤊ 0⤋
I agree with Jeff M.
It all depends on your situation (cost vs. savings)
Example:
Let's say you have a $200,000 loan. For every 1% interest you save by refinancing you'll save $2,000 in the first year (slightly less the second because you've reduced your principal). If it costs you $2,000 to refinance then you'd recoup the charges in one year. Lower your rate by half a percent and it would take roughly two years.
As you can see, % rate is only one variable in the equation (size of the loan & closing costs are the other major variables to consider).
2006-09-13 16:01:03 · answer #3 · answered by derek 4 · 0⤊ 0⤋
A minimum of 1 full percentage point (1% APR) reduction would be a good rule of thumb. Keep in mind that upfront fees can raise the APR above the rate that is quoted.
2006-09-13 18:00:11 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Well it depends on the size of the loan and closing costs. Anyway, if you cannot get a .75%-1% better rate, I wouldn't go to all the trouble unless you are on an ARM and it's ready to expire.
2006-09-13 15:00:11 · answer #5 · answered by Olivier P 3 · 0⤊ 0⤋
There are loan calculators out there than can help you with this. More information is need to answer your question. What are then terms of your exisitng loan and what are the terms of the refi. Are there points or closing costs.. ??
2006-09-13 15:05:02 · answer #6 · answered by limgrn_maria 4 · 0⤊ 0⤋
you can pretty much refinance any time.
for various reasons, getting cash out, home equity loans, debt consolidation.
if youve only been there 2-5 years you probably dont have that much equity... do you have an ARM?
check out http://www.savingslife.com
see the home value tools to check your homes appreciation to see if refinanceing makes sense for you.
2006-09-17 03:25:46 · answer #7 · answered by Anonymous · 0⤊ 0⤋
I'd think it would be 2 or 3 precentage points else it would not be in anyones general interest.
2006-09-13 14:59:25 · answer #8 · answered by Jack G 3 · 0⤊ 0⤋