When does it make sense financially to refinance?

When to refinance your mortgage

Mortgage loan refinancing can be a good idea in a variety of instances. One of the most common reasons for refinancing a mortgage loan is to lower the interest rate, and this can certainly be a great reason to refinance your mortgage loan. But how do you know when it’s worth it to take the time to go through a mortgage refinance?

The general rule of thumb regarding mortgage refinancing is that you should lower your loan interest rate by at least one percentage point. In other words, if you currently have an interest rate of 7% and you can refinance into a mortgage loan of 6% or lower, it may very well be worth your effort.

Remember, though, that you will probably need to pay closing costs with your refinance, so you want to make sure that you only refinance when it is truly financially beneficial.

A small drop in interest rates does not merit a rush to refinance your mortgage loan, especially if you have recently refinanced. If you fall into a pattern of refinancing every single time mortgage rates drop you will wind up paying so much in various fees and closing costs that it will take years before the lower interest rate ever saves you some money.

See our refinance interest savings calculator to determine how much refinancing might save you overall and whether or not it is right for you.