When interest rates drop, one wonders whether or not it makes any sense to refinance. Unfortunately, there are many different “rules of thumb” being thrown out to the public to answer the question, “When is the right
time to refinance?”
In reality, refinancing your home mortgage could be done any time there is a significant savings in your monthly mortgage payment (or in your overall debt payments if you are consolidating other loans by refinancing)
AND you plan to live in your home long enough to recover the expenses incurred with refinancing.
There will be a variety of costs incurred when refinancing a home mortgage, these include: a title policy to assure the lender that they have an enforceable deed of trust and loan on the property, an appraisal to determine your home’s market value, a loan origination fee, loan discount points, possible attorney’s fees, and a few other miscellaneous fees.
In general, consider refinancing whenever it creates a significant monthly savings and you can recover the expenses of refinancing during the time you own the home. Consider a “par value” loan to keep closing costs at a minimum and be aware that loan points paid when refinancing are not fully deductible as interest in the first year. Be aware of the “home equity debt” limits, all of the interest payments may or may not be fully deductible.
By Duane Duggan, Realtor® RE/MAX of Boulder, Inc.