To see if refinancing makes sense, first start by determining the approximate break–even point, or the number of months that it will take for you to recover the costs of refinancing.
For example, let’s say you have a $200,000 fixed rage mortgage at 5% with good credit and you can refinance to a 4% fixed rate loan. Let’s also assume that it will cost you $4,000 in closing costs to refinance. In this case you are saving approximately $2,000 a year so you would recover your costs in about two years. If you plan on keeping your home for more than two years, in this case it may make sense to refinance. To make sure you do not end up paying more in the long run, consider matching the term of the new loan with the number of months you have left to pay on your current mortgage. This is just a rule of thumb and does not factor in such things as the tax implications of mortgage interest.
To make this process easier, BECU has several different refinance calculators at www.becuhomeloans.org to help you determine if refinancing is right for you.
Q. Is there a percent I should look for?
Not necessarily. The length of time that you will own your home is the biggest factor as this factors into when you will breakeven. Other reasons you may want to refinance are if you have an adjustable rate mortgage or a FHA loan with Private Mortgage Insurance (PMI).
– Ray Batalona, Mortgage Advisor, 425-609-5481, Equal Housing Opportunity Lender, NMLS# 116652