The current low interest rate environment has many people considering the idea of a refinance. Â When is it appropriate to refinance your loan? As with all things real estate, it depends on the family, the current mortgage, the long term and short term strategy for budgeting, and good old fashioned math.
If the goal is to drop the interest rate and improve the payment, then usually you want to see at least a half-percent reduction in your rate. The math of the refinance makes sense when you can recapture the cost of the refinance within a few years.
Refinancing can be strategic in nature: paying off high-interest debt, removing mortgage insurance, or dropping from a 30-year to a 15-year term. When strategic refinancing is the goal, the interest rate becomes a function of cash flow, budget and math. We still shop for the best rate we can find, but how that rate stacks up against our current loan is not as important. The half-percent rule above is not as relevant if you can cancel a high-interest credit card and save thousands, or pay off debt and improve family cash flow.
Now is as good a time as any to review your options.
Jayson Stebbins is a 23-year veteran of the mortgage banking industry. Contact Jayson and his team at (408) 825-0220 or at stebbinsmortgageteam.com.
