When To Refinance Your Home

Some lenders use the rule of thumb that you should refinance when there is a difference of 2% between the old rate and the new.

Following this "rule may cost the homeowner a lot of money. Actually, a much smaller point spread may justify refinancing your mortgage if there are other factors present.

Other Factors Which Should Be Considered

• Closing Costs: Possible pre-payment penalties on the old loan, points and fees on the new loan and attorney fees generally will add up to 3% to 4% of the loan and generally must be paid when the loan closes.The borrower must consider the loss of earning power of these funds in future income projections.
• Projected Length of Ownership: The closing costs can be spread over the life of the loan.This means, the longer the projected period of ownership is, the smaller the spread between the old and new mortgagees can be and still justify refinancing.
• Income Tax Bracket of the Owner: Higher interest payments mean larger income tax deductions. The effect on taxable income must be considered.
• Loans In Excess of 1987 Revenue Act Limits: The interest on loan amounts in excess of acquisition debt on a first and second residence up to $1,000,000 plus $100,000 in home equity loans is not deductible. Acquisition debt is the amount of loans incurred to buy, construct or to substantially improve a qualified residence.

The New Mortgage - Variable or Fixed Rate?

How Long will it take to "Break Even"

Payment Calculators

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