| 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. |
