Refinancing to Save Money

If your goal is to save money by lowering your payments, you need to take the costs of getting the loan and divide that by the monthly payment savings. This will tell you how many months it will take you to break even on the costs and start saving money over the long term. If you plan on staying in the home past this future date, you should refinance. If the cost break-even point is under 36 months, you should do the refinance. If it takes 36-60 months, consider it carefully. If longer than 60 months, it probably is not wise to refinance at this time. If your goal is to refinance to a shorter term loan (i.e. go from a 30-year to a 15-year) and pay off your house faster, be sure the rate is dropping enough to recover the costs as if the refinance was a 30-year loan. If it doesn’t, you should just start pre-paying principle on your current loan at the 15-year payment amount instead of refinancing and paying costs. An experienced loan officer will do these calculations for you so you can understand them to see if you are truly saving money.

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