How do you know when it is a good time to refinance a mortgage for a better interest rate?

Question

My current rate is 6.5% for a traditional loan, with excellent credit for a thirty year fix. How do I know when the rates and fees are favorable to refi?

Answer 1

Only by speaking with a mortgage expert and discussing the terms that are available to you. Some other features you need to make note of for your qualifications: cash reserve assets you own, amount of equity in your house (what is your value and amount owed on the home), how many years do you have left, how long do you plan on staying in the home?

A lot of people in the public will probably answer "when the rate is 1 percent lower, its worth it), but thats not really true. Its when the benefit outweighs the cost of the refinance - THATS when its time to refi.

For instance... if you have a $60,000 loan, by refinancing on a new loan amount of $62,000 (closing costs included), from 6.5% to 5.5% would result in a savings of $38 a month. This would take 53 months (4.5 years) to break even on the cost of the refinance.

Or, another example... if you have a $350,000 loan from 6.5% to 5.75%, the new loan amount of $355,000 would save $140 a month. This would take 36 months (3 years) to break even.

In either case, if you're planning on moving in 2 years, then you're better off not refinancing.

One last option is refinancing to consolidate debts as well. A lot of times, I've found customers able to payoff their bills, save $300-500 a month AND shorten the term of their mortgage from a 30-year term to a 20- or 15-year term loan. Thats the ideal situation. Talk to a mortgage consultant to find out your options!

Answer 2

You should know if the closing cost are less than the new interest rate. So if your closing cost are $3,000 snd you drop your interest rate 1% and save $100 a month, then you will made a smart choice after 30 months or 2.5 years. Also if you need money for debt, school or home improvement it may also be a good time. If you plan on moving in the near future you may consider keeping your current loan. Maybe you should get quotes from http://www.nationwidebillrelief.com/homerefinance.html and see what your closing cost would be and how much you can save. If you have other questions ask their live help center. It cost nothing to take a look.

Answer 3

Go to bankrate.com and check the rates every so often. As a rule of thumb, you want to refinance when you think rates are at their lowest.

The federal reserve has kept rates the same now for 3 meetings. Most economists ( Myself included ) agree that the fed will be lowering rates next year at least 2-4 times. This means mortgage rates will go down as well.

At 6.5, I would not really consider doing a re-fi until rates go below 6.

If you want to see how much money a re-fi would save you, go to:

http://www.advancedwealthsolutions.com and click on the investors box. Then click on tools & you will get a free mortgage calculator.

Lots of luck!

< peace >

Answer 4

Currents rates are based upon the 10-YEAR TREASURY NOTE
If you are really interested in a REFI watch the note and contact the bank when it drops to see what rates are offered.
Good Luck!

Answer 5

I think I remember reading somewhere that when you can get a whole point lower on a 30 year fixed than it's worth. In your case that would be 5.5 Not sure though. I'm sure over the long run any point reduction would be worth it. Check out Money Magazine's online site at www.money.com They have a lot of morgtage calculators to help you figure it out.

Answer 6

I've read in money magazine that you would need a rate 1 point lower than your current rate to make it worthwhile. Rates were around 5.5% a couple of years ago.

Answer 7

watch the market and interest rates...usually every 3 years they up your notes if it isn't fixed...
Tell your banker to call you asap when it is profitable to do so

Answer 8

David is correct....To save anything, there should be a drop of at least 2%

Answer 9

4.5% or lower.