Terms of Use:   

The Whys:

  1. To save money when market rates are lower than what you are paying.

  2. To pay off  non-deductible consumer debt using some of the equity built up in your home. 

  3. To change your present adjustable mortgage to a fixed rate or vice versa.

  4. To get cash for home improvements, college education, second home purchases and personal investments.

The Whens:

If you are refinancing your mortgage for the reasons defined in 2-4 above, then it really comes down to understanding how much you will pay for refinancing your home versus how much you will save.  If you are considering refinancing a fixed-rate mortgage to reduce your monthly payments, then the following discussion may help.   

The decision to refinance a home should be based on whether you will own the property long enough after refinancing to recapture the expense connected with the new loan. The way to figure this can be as easy as subtracting the proposed new home payment from the existing payment to find out what the monthly savings will be. Then, divide the monthly savings into the cost of refinancing to determine how many months it will take to recapture that cost.

There are some situations in which a refinancing decision should be made. If you are able to negotiate a "no-cost" mortgage (you pay no points or closing costs), and if the new mortgage rate is lower than your existing rate, then refinancing your loan would certainly be of financial benefit to you. If the remaining mortgage balance, including points and closing costs, can be refinanced at a reduced monthly payment, and still be paid off within your existing mortgage payment term, then refinancing would be highly advisable.

You can generally count on it being time to refinance when your new mortgage rate is at least one to two points lower than your existing rate, and you plan on staying in your home for at least three to five years.