When should you refinance?

Not so long ago, refinancing loans could cost a lot of money. While it seems ironic that you have to spend money to save money, that was essentially the case. Refinancing loans meant paying closing costs and other fees. Therefore, for a lower interest rate to be beneficial, it had to be significantly lower (at least two percent below) your original rate.

Times have changed, and you may now have good reason to refinance much sooner than you might have anticipated. You don’t have to wait for a huge drop in interest rates; even a minor drop has the potential to save you a significant amount of money.

What has changed? Basically, most lenders will now reduce or eliminate the fees associated with refinancing loans if agree to a higher interest rate. In many cases, this higher interest rate will still be lower than the interest rate of your original mortgage. If that is so, then you have everything to gain by refinancing, including smaller monthly payments and a less expensive loan overall.

That said, there might still be circumstances under which you choose not to refinance, particularly if you pay refinancing fees upfront instead of accepting a higher interest rate. Namely, if you are considering a move within a few years, it is probably best not to refinance. This is because it may be necessary to hold the loan for a time to experience any savings.

Most lenders are happy to talk to you about refinancing loans. Since the terms can be complex, make sure that you schedule a meeting to go over the details. Rash decisions are never a good idea when it comes to mortgage decisions.