What situation makes sense to refinance? How long will I have to own the home to make up the cost of the refinance?
With mortgage rates near historic lows, many homeowners are considering the benefits of refinancing their current home loans. So how do I tell if refinancing is the right option for me? 2 is the key factor that is used as a general rule of thumb in the mortgage industry. 2 being the number of percentage points you would need to save on the interest rate and 2 being the minimum number of years you would need to stay in the property afterwards to make the refinance worthwhile. However, one can still see significant savings with even a smaller 1% decrease in interest rate which would make this an attractive option considering the time you plan on staying in this home. Since one would incur additional closing costs with a refinance option (approximately 2.5% of the loan amount on average) one would need to analyze the monthly savings verse the expense to find a breakeven point. This would indicate whether the refinance option really works for your particular situation.
This answer was provided by Jeff Edwards of DHI Mortgage.