Should You Refinance Again?

The answer is ... maybe

You took advantage of low interest rates to refinance — and then rates went even lower. Should you refinance again? It’s easy to figure out if it’s worth the expense.

First, check with multiple lenders to find out the costs and rates that are available to you. Each should give you a Good Faith Estimate, which is an itemized list of fees and costs for the loan. Be sure to contact different types of lenders, including banks, mortgage brokers and credit unions. Also talk to your current lender; to keep your business, it may offer you a deal others won’t match.

Next, run the numbers. For instance, if it will cost you $1,200 to refinance and doing so will lower your monthly payment by $50, it will take you two years to break even. If you plan to stay in the house that long, it’s worthwhile. But if you plan to sell within two years, it’s not.

But what if you refinanced a year ago, and now can lower your rate even further? Using the above example, you have saved $600 in lower mortgage payments so far, but you spent $1,200 on the loan; you’re still behind by $600. And if refinancing again will cost another $1,200 and provide another $50 in monthly savings, you’ll now need three years, not just two, to break even. Is it worth it? Yes, if you plan to remain in the house for more than three years; no, if you do not.

As you can see, refinancing depends on how much it costs, how much it saves and how long you plan on living in the house. So talk with your financial planner about your situation. Your planner can help you make the best decision for your own specific circumstances.

Understanding No-Closing-Cost Loans

You’re comparing loans. One loan requires thousands in closing costs; the other doesn’t cost a dime. Which is the better deal?

The answer depends on the total costs of the loan, not just the closing costs (which are the costs involved in obtaining the loan). Loans that waive closing costs often force you to pay a higher interest rate. So when evaluating loans, you need to determine which program offers you the lowest cost over the life of the loan, not merely the lowest cost for obtaining it.

Originally published in Inside Personal Finance, January 2011

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