To determine if today is the right time to refinance you will need to do a break-even analysis of the costs associated with refinancing and the time it will take to
recoup those costs. Simply determine your savings by decreasing your monthly payment or reducing your monthly finance charges and the closing costs associated with
closing your new loan.
Example:
Say your monthly payment is decreasing by $100, and your total closing costs will come to $2,000, your break even is 20 months. If you plan on being in your house
for longer than 20 months, now is a good time to refinance.
Reducing Your Monthly Payment:
Some people may want to reduce their monthly payments due to a reduction in their income or increased monthly financial obligations such
as sending kids to college. If you are in this group you may be less sensitive to today's interest rate.
To Reduce Your Monthly Payment You May Want to Consider:
Interest only loans. These loans only require that you make interest only payments, enabling you to potentially make a significant reduction on your monthly payment.
Adjustable rate loans. Although you may have a 30-year or a 20-year fixed rate loan today, if you don't have plans to stay in your home for 8 or more years you will probably be better off with an ARM.
Eliminating PMI. If you are currently paying PMI and your property has appreciated you may be able to eliminate your PMI premium. Start by contacting your servicer to ask what their process is to determine if you can drop your PMI premium.
If you believe interest rates will drop in the near future you may want to sign up for a rate watch service. Typically services will monitor interest rates and
notify you when rates have hit a level you specified for your search.
