Mortgage rates are the lowest they’ve been since 2016. Does that mean it’s time to refinance your home? Well... maybe.
As CNBC reminds us, refinancing comes with its own costs:
In order to secure a lower interest rate, you have to pay closing costs again, which can include bank fees, appraisal fees and attorney fees, among other things.
These costs typically run between 1% and 2% of your total mortgage balance, although that can vary, John Cooper,
a certified financial planner at Greenwood Capital
, tells
CNBC Make It
. On a $300,000 mortgage, for example, you would expect to pay around $6,000 in fees.
Is paying $6,000 in fees to save a hundred bucks on your monthly mortgage payment worth it? It depends—which means you have to do the math. Calculate how long it’ll take to earn back the cost of refinancing, and if the answer is “four or five years,” then ask yourself whether you plan to stay in the house for that long.
You also shouldn’t assume that refinancing into a lower interest rate means paying less interest overall. CNBC notes that refinancing into a new 30-year mortgage, for example, can mean paying another 30 years’ worth of interest—and although the lower interest rate may save you money every month, adding another 30 years to your loan could cost you more in the long-term. On the other hand, you might not stay in your home for another 30 years, or you might use the lower interest rate to pay down your home more quickly. There are a lot of variables to consider, which is why you need to do these kinds of calculations before you decide to refinance.
If you’d like more insight on when you should and shouldn’t refinance your mortgage, we’ve got a three-step plan to help you make that decision. If you are considering refinancing your mortgage, or have recently refinanced and want to offer your advice, share your stories in the comments.