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New Paper Suggests Optimal Time to Refinance
Once rates drop one or two percent from the rate you now pay, you stand a much better chance of significant savings-even after the cost of the refinance is factored into the equation. Some homeowners refinance to save a few dollars per month. Then, when rates drop again, they see another opportunity to save. But the new report suggests that it may be wiser to wait until the savings gained by the refinance are significantly large. That way, the costs of application fees, points, and other refinance expenses are minimized. If, for example, it would cost $1,500 to refinance and you'd save $50 a month, it would take 30 months to recoup your closing costs and break even. If you plan to sell your home within the next three years, you may not accomplish any gains whatsoever through refinancing. On the other hand, if you could save $200 per month at a cost of $1,500, it would take you only seven or eight months to break even and start realizing the savings. By waiting to refinance until the savings are greater, you drastically increase your savings over a shorter timeline.