How You Know When It’s Time to Refinance Your Mortgage

Pennygem

When low interest rates are on offer, it’s a good time to ask, ‘should i refinance my current mortgage?’ PennyGem’s Justin Kircher has some things you need to think about before starting that process.

Transcript

00:00When low interest rates are on offer, it's a good time to ask, should I refinance my

00:08current mortgage?

00:09Refinancing has the potential to save you hundreds of bucks on a mortgage payment each

00:13month, and an interest rate lowered one to two points could reap tens of thousands of

00:17dollars over the course of a 30- or 15-year loan.

00:20Money Crasher says the most common goal for homeowners is to get that lower monthly payment,

00:24and the site says that if your credit score, income, and debt-to-income ratio has improved

00:28since you first got the keys to your home, qualifying for a lower interest rate should

00:32be easier.

00:33If your financial outlook has declined since then, and you haven't built up at least 20

00:37percent equity in your property, the site says it might not be worth it, even if the

00:41market rates are lower.

00:43Money Crasher points out that just like when you purchase a home, you will have closing

00:46costs which, if you have the cash, will come out of your pocket, or be rolled into your

00:50new mortgage.

00:51Here's where Bankrate says you need to do some calculations.

00:55With closing costs likely in the thousands of dollars, it could take up to several months

00:59or over a year until you theoretically pay that rolled-in amount back through your monthly

01:03mortgage payments.

01:04The site says that if you plan on moving before that time is up, then opt against refinancing.

01:09Money Crasher cautions that with some mortgages, there could be a costly pre-payment penalty

01:13if you haven't already paid off three to five percent of your mortgage.

01:17So calculate your break-even scenarios and decide if it really is time for you to refinance

01:21that mortgage.

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