With mortgage rates at historic lows at the time of publication, many homeowners are wondering: is it time to refinance?

Though a refinance has the potential to bring about some serious benefits (a lower payment, less interest paid, a quicker pay-off timeline, for example), the truth is it’s not right for everyone.

It’s important to remember that a refinance comes with closing costs, just as your initial loan did. So the question is, do you stand to save enough to make those costs worth it?

Here’s how to find out:

  • Know what your current rate and loan balance is. If you’re not sure, call your mortgage lender. Make sure you know how many months are left on your loan, too, as this will also play a role in your possible savings.
  • Use a refinance calculator to gauge how much you might save. These calculators can be a good way to understand what you could possibly save, given the details of your current loan and expected new one. These details may change once you actually apply with a lender though, so take the results with a grain of salt.
  • Get a loan estimate from a mortgage lender for a more accurate cost estimate. You can even apply with multiple lenders to ensure you get the best deal.
  • Determine your break-even point. Given your total closing costs and the monthly savings your refinance will offer, how many months will it take you to break even? Keep in mind that refinancing may extend your loan term (often to 30 years), so make sure you factor this in as well.
  • Think long-term. How long do you plan to stay in your home? Will you be there long enough to break even and reap the benefits of your refinance.

If you’re going to be in you’re early on in your loan, even a 0.25% decrease in your rate can potentially mean serious savings over time, so make sure you look at the full picture and get a detailed loan estimate to help you gauge your costs vs. savings. 

Refinancing can mean other benefits, too

Remember, lowering your rate and monthly payments are just one possible benefit of a refinance. Refinancing could also help you consolidate higher-interest debts or turn your home equity into cash (for tuition, medical bills, home improvements, etc.) if you qualify.

Want to learn more or get an estimate of your refinance costs and savings? Get in touch with an Embrace Home Loans team member today. We’re here to help.