how do you know if it's worth it to refinance

We just bought in Dec, and got 5.375%...my mortgage guy told us we would probably never refinance because we got a good rate...but when is it worth it to do it?

Re: how do you know if it's worth it to refinance

It's usually not worth it to refinance until the rate is at least 1% lower than where you are now.

The rate would need to go to at least 4.375% in order for it to be worth your while.

Re: how do you know if it's worth it to refinance

Usually people will say it has to be at least 1 point different to be worth it.

But it really depends on how long you plan on staying in our house because you have to recoup the closing cost for the refinance.

So let's say you have a $5K in closing cost to refinance at a lower rate (that's just a random number).

So what you have to do is see how much you will save with the lower rate and how long it will take for you to recoup the expense to do so. For many people, usually it does not pay if you are going to move out of the house in less than 5 years. But you have to the math to see how long it would take in your case.


Let's assume that you will save $200 per month with the lower rate (whatever it is!). That's a saving of $2400 per year. But now you spend $5K in closing cost (again just an example). It will take you over 2 years to see the actual saving.

Message edited 3/19/2009 9:17:31 AM.

Re: how do you know if it's worth it to refinance

It's all a math problem. You have to see if and when the closing costs make the lower payment worth it. I would say if you don't plan on staying longer than 5 years that it's not worth it.

So just sit down with a mortgage person, find out what closing would be, find out what rate you can get and how much/month you will save!

Re: how do you know if it's worth it to refinance

we were looking into doing it .. but realized its not worth it..
the couple banks we called said that we would have a 10K closing cost

and while it might be good in the long run.. its not good for us now.. KWIM?