The time might be right to refinance your mortgage. Mortgage rates are still right around three percent, and that’s low enough to save many people lots of cash. In one recent report, there were 11 million American homeowners who could lower their mortgage by .75 percentage or more. The same study found that of those eligible for lowering their mortgage rate, the average savings worked out to about $279 per month. Here’s everything to consider about refinancing.
The One Percent
A good rule of thumb for refinancing is to see if you can lower it at least between 0.5 and one percent. As Money notes, if you have a $300,000 balance and refinance from 3.75 percent to 3.25 percent, you could save about $1,008 per year. If you can reduce your rate by one percent, your savings hit $1,980 per year.
Of course, those savings will only be possible with a good credit score. Before you refinance, make sure your score is as high as possible. The higher the credit score, the better mortgage rates you’ll be offered.
Another thing to consider when refinancing a mortgage is how long it will take to recover the closing costs on the new loan. Closing costs — applications fees, inspection costs, etc. — typically will run you between three and six percent of the total loan amount being refinanced. You can calculate the time it will take to break even by dividing the closing costs by the savings provided via the new loan. The less time it takes to recover the closing costs, the better idea it is to refinance. You shouldn’t do the deal if you’re not going to be in your home long enough to make back the money.