Did you hear? Mortgage rates are at a 15-month low right now, and with the Fed cutting rates, they might drop even more. If you’ve been thinking about refinancing your mortgage, this could be a great time to do it and save some money. But before jumping in, let’s break down how to figure out if it really makes sense for you.
Step 1: Know What Refinancing Costs
First things first — refinancing isn’t free. You’ve got some costs to think about:
- Lender fees: Stuff like application fees, origination fees, or points.
- Title costs: Charges for things like a title search and insurance.
- Third-party costs: Fees for appraisals, attorneys, credit reports, etc.
- Escrow services: Paying for taxes and insurance.
On average, these costs add up to about 2% of what you still owe on your mortgage. So, if you owe $200,000, you’re looking at around $4,000 in fees. And don’t fall for the “no-cost” refinance sales pitch — they usually just hide the fees in a higher interest rate or sneak them in somewhere else.
Step 2: See How Much You’ll Save Each Month
To see the potential savings, just subtract your new monthly mortgage payment from your old one.
For example:
If your current payment is $2,300 and the new one drops to $1,800, you’re saving $500 a month. Not bad!
Step 3: Find Your Break-Even Point
Now, let’s figure out how long it’ll take to cover those refinance costs with your monthly savings. Just divide the total costs by your monthly savings.
For example:
If refinancing costs $4,000 and you’re saving $500 a month, it’ll take about 8 months to break even. After that, it’s all savings!
So, Is Refinancing Worth It?
It could be, but not always. Here are some things to consider:
- Are you extending your loan term? If you start a new 30-year mortgage after already paying on your current one for several years, you might end up paying more interest overall.
- Planning to move soon? If you sell your house before you hit that 8-month break-even point, you won’t really see the benefit.
- Has your credit score dropped? Lower credit scores can mean higher rates, so refinancing might not save you much.
If you’re not sure, it’s a good idea to chat with a trusted loan officer. They can help you figure out if refinancing makes sense for your situation.
Pro Tip: Think About a Shorter Loan Term
You might also consider refinancing to a shorter term, like a 15- or 20-year loan. Your monthly payments might be higher, but you could save a lot in interest in the long run.
With rates this low, it’s worth setting up an appointment to see what you can save. We can provide estimates, calculators, and trusted advice when you need it!
