When Should I Refinance My Mortgage Loan?

When does it make sense to refinance my home? Is there some kind of rule of thumb to go buy? Should I refinance my mortgage loan now, or build more equity first? Am I even qualified for a refi?

When it comes to refinancing, these are some of the most common questions that homeowners ask. So I’ll do my best to answer them in a straightforward fashion with this blog post.

Let’s just roll them all up into one question, since they all basically ask the same thing:

When Should I Refinance My Home?

First of all, I should point out that I’m not telling you to refinance your mortgage loan. That’s your decision. I want to clarify this, because there are many websites out there that urge homeowners to refinance immediately. Of course, these websites belong to people who are actually selling loans. But this is not one of those sites, and I am not one of those salesmen.

On this website, you’ll get the straight scoop without any sales pitch. What’s my point? The point is that, by the time you finish reading this article, you may find that refinancing is a bad idea for you right now. Or you might find that it makes perfect sense. Either way, you’ll come to this realization on your own, without any marketing push or hype.

With that disclaimer out of the way, let’s talk about when refinancing makes sense based on your financial situation.

When should I refinance my mortgage loan? Here’s the key to answering this common question: If you can save more money over the life of the new loan (by lowering your interest rate) than what you pay in closing costs … then it makes sense to refinance. On the other hand, if you pay more than you can possibly save, refinancing is a bad idea.

Okay, that tells you when you should refinance your home loan. But how do you figure it out? How do you calculate the savings versus the costs to see if refinancing makes sense right now? You need to figure out the break even point, or BEP. This is point beyond which your savings will exceed your costs. In other words, this is the point where refinancing makes sense. How do you determine your BEP? You can determine this by using a mortgage refinance calculator. Do a Google search for that phrase, and you’ll find plenty of these calculators. You can also find them on the websites of most banks and lenders.

Calculating the Cost of Refinancing

These calculators work in slightly different ways, but in the end they do the same thing. They will tell you how long you would have to stay in the home (with the new loan) to pass the break even point. Remember, your true savings occur after the BEP, not before it. So you need to know where this point lies, so you can answer the question: Should I refinance my mortgage now?

Here are the items you will need to put into the refinance calculator:

1. Your current monthly payment
2. Your current balance on the mortgage loan
3. The interest rate on the current loan
4. The number of years you have left on the current loan
5. The total cost of refinancing (closing costs, points, fees, etc.)
6. The interest rate on the new loan, after refinancing
7. The term / length of the new mortgage loan

Based on this information, the calculator will calculate your savings over future years. This is how you determine your break even point, and how you decide whether or not you should refinance the mortgage loan. After crunching the numbers, the calculator will tell you something like this:

“You will need to stay in the home and keep the new mortgage loan for eight years and three months in order to break even. After that point, you will start to accumulate savings.”

Of course, it won’t say it like this. It will say it with numbers. But you get the idea. Remember, the phrase “break even” refers to the point where your savings and costs are equal. In order for refinancing to make sense, you must go beyond that point. This makes the original question much easier to answer. Should I refinance my mortgage loan? To which I would respond:

• How much is the refi going to cost you?
• How much will you lower your interest rate?
• How long do you plan to stay in the home?

Based on this information, you can simply plug the numbers into a refinance calculator to answer the question for yourself. There … now don’t you feel empowered?

Related Articles

There’s a lot of information on this website relating to mortgages, home ownership, refinancing, etc. If you want to learn more about this subject, I recommend starting with the articles below.

• How Does Mortgage Refinancing Work?
• How to Find the Lowest Refi Rates
• Getting Refinance Quotes Online

Disclaimer: This article answers the question, when should I refinance my home? This article provides general information intended for a wide audience. However, this website does not provide specific financial advice to individual consumers. In other words, we are not acting as your financial advisor. So please do not make any mortgage refinancing decision based solely on the information presented above. You should always seek professional, one-on-one advice when making major financial decisions.