When not to refinance

Refinancing to lower your monthly payment is great unless it puts a big dent in your pocketbook as time goes on. If it costs more to refinance, it probably doesn't make sense. For instance, if you're several years into a 30-year mortgage, you've paid a lot of interest without reducing your principal balance very much.

What is not a good reason to refinance?

Mortgage refinancing is not always the best idea, even when mortgage rates are low and friends and colleagues are talking about who snagged the lowest interest rate. This is because refinancing a mortgage can be time-consuming, expensive at closing, and will result in the lender pulling your credit score.

At what point is it worth it to refinance?

A rule of thumb says that you'll benefit from refinancing if the new rate is at least 1% lower than the rate you have. More to the point, consider whether the monthly savings is enough to make a positive change in your life, or whether the overall savings over the life of the loan will benefit you substantially.

Is there a negative to refinancing?

The number one downside to refinancing is that it costs money. What you're doing is taking out a new mortgage to pay off the old one - so you'll have to pay most of the same closing costs you did when you first bought the home, including origination fees, title insurance, application fees and closing fees.

What is a good rule of thumb for refinancing?

How Does the Refinancing Rule of Thumb Work? The 1% refinancing rule of thumb says that you should consider refinancing your home when you can get an interest rate that is at least one percentage point lower than your current rate. The lower the new rate, the better.