When Should You Refinance Your Home?

• If you bought a house when interest rates were hovering around 10 percent, you may want consider refinancing your home. Interest rates are currently around 7 percent, they haven't been this low since the 1960's. The rule of thumb is that if the interest rate is 2 percent less than your current loan you should look into refinancing your home, however, before you decide to refinance ask yourself how long you plan on staying in the house. It will take you about 3 years to recoup the first mortgage and then taking out a new mortgage. This means that you will have to pay closing costs, which often include an application fee, title insurance, appraisal fee and attorney's fees.
• To figure out if you will benefit by refinancing, divide the total cost of refinancing by the amount you will save on your monthly payments. Suppose that refinancing your home will reduce your monthly payment by $50 and closing costs are $3,000. Divide $3,000 by $50. In this scenario, it will take you 60 months, or 3 years, to recoup your costs. If you plan on staying the house over 3 years then you will benefit from refinancing.