Conventional wisdom says that it pays to
refinance
if you can get an
interest rate
at least two percentage points
lower than the rate you're currently paying. But that's not a
fixed number. Recently, competition among lenders has helped lower
fees, making it worthwhile to refinance with a rate drop of just
one percentage point.
Nevertheless, refinancing pays off only if
you know you'll recover the amount the transaction costs
you. That means you should be planning to stay in the home you're
refinancing long enough to recoup the upfront fees.
Everyone's situation is different.
But if you're thinking about refinancing, four of the most
important questions to consider are:
How
long do you plan to stay in your home?
How
much will you pay in upfront refinancing costs?
If you're far enough along on your current
fixed-rate mortgage
that you've begun to chip away at the
principal,
the refinancing decision may be more complicated. That's because
once you're a few years into your mortgage, you've already paid
off a substantial part of the interest.
But when you refinance — like taking
out any new mortgage — you'll go back to paying mostly interest.
That delays repayment of the principal and postpones building
equity
in your home.
A potential lender or real estate attorney
should be able to help you compare the combined total interest
you'd owe if you refinanced the amount remaining on your
mortgage.
Dwight
P. Robinson, Senior Vice President, Corporate Relations,
Freddie Mac
Dwight
P. Robinson, Senior Vice President, Corporate Relations, 
