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| Should I Refinance |
Refinancing Rules of Thumb for Reducing Your Rate
The 1% Rule: Most people consider refinancing beneficial if they can reduce their interest rate at least 1% lower than the interest rate on their current mortgage.
Plan to stay in your home at least 2-3 years. There are fees and costs associated with refinancing, so it could take a few years to break even. The amount of time it could take to recover the charges depends on the rate, point and fee structure.
There are exceptions to the rules above.
If you have an adjustable rate mortgage that is going to reset to a higher interest rate, or you'd like a more predictable payment, then refinancing into a fixed rate loan, regardless of the 1% interest rate rule, might be a good idea.
If your annual income has increased, or your goal is to pay off your loan sooner, then going to a shorter loan term may mean a lower interest rate. Even if that move is not reflected in a lower monthly payment, you may be able to pay less total interest over the loan term.
The cost of no cost refinancing.
If you have equity in your home and have little money to refinance your mortgage, you may choose to roll fees?like loan origination fees, appraisal fees, and attorney fees, etc.?into your new loan, or take a higher interest rate to cover those fees.
You'll pay less out of pocket now, but be aware that you will finance those costs over the life of the loan. If you decide this is the right move for you, make sure you plan to stay in your home long enough to break even on the cost of these fees.
You can use our calculator "Should I refinance?" and we can tell you how much you can save with new loan.
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