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Traditionally, the decision on whether or not to refinance has
meant balancing the savings of a lower monthly payment against the costs of
refinancing. But in recent years, companies have introduced "no cost"
and low-cost refinancing packages that minimize or completely eliminate the
out-of-pocket expenses of refinancing. (These refinancing packages compensate
with a higher interest rate, or by including some of the costs in the amount
that is financed.)
With traditional refinancing, the most often cited rule-of-thumb is
that the interest rate for your new mortgage must be about 2 percentage points
below the rate of your current mortgage for refinancing to make sense. However,
with the newer low- and no-cost refinancing programs, it can be worth your while
to refinance to obtain a smaller reduction in interest rates.
How long you
expect to stay in your home is also a factor to consider. If you'll be moving in
a few years, the month-to-month savings may never add up to the costs that are
involved in a refinancing. |
