With mortgage rates going up, I can predict what’s going to happen when I gather with friends and family in the coming months: Someone is going to ask if they still should refinance. Without their mortgage statement on hand, without my fancy financial calculator in my pocket, without food in my stomach, and if I’m holding a drink in my hand, there’s no way I can give an informed answer. However, there are times when even I need to use a rule of thumb, and here it is:
$100,000 balance owed, you need to save at least 2% on the interest rate
$200,000 balance owed, you need to save at least 1% on the interest rate
$300,000 balance owed, you need to save at least 3/4% on the interest rate
$400,000 balance owed, you need to save at least 1/2% on the interest rate
Refinancing for the Right Reason
If you’re considering a refinance and want to know if it’s a smart idea in your situation, here’s how I might answer, and it’s based on the reason for refinancing.
- For home improvement or to consolidate other debt into one monthly payment. YES, you should probably refinance. This may be the best time for you for a Cash-out Refinance because interest rates are so low and probably lower than the mortgage you have now.
- To drop PMI. YES, you should probably refinance. This may be the best possible time to refinance because interest rates are probably lower than your current mortgage and it’s likely your home has gone up in value since you bought it.
- To save money. MAYBE you should refinance. It’s a good time because rates are likely lower than the interest rate you have now. On the other hand, it costs money to refinance and it’s a bit of a hassle. If you still have more than 10 years left, refinancing might be worthwhile depending upon how much you owe and what your current interest rate is.
Doing the Calculation
If you want to know how much you can save by refinancing, find a recent mortgage statement and give me a call so we can run the numbers together. Call me at 603-471-9300 or email me.