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Traditionally, the decision on whether or not to refinance has meant
balancing the savings of a lower monthly payment against the costs of
refinancing. But in recent years, companies have introduced "no cost" and
low-cost refinancing packages that minimize or completely eliminate the
out-of-pocket expenses of refinancing. (These refinancing packages
compensate with a higher interest rate, or by including some of the costs
in the amount that is financed.)
With traditional refinancing, the most often cited rule-of-thumb is
that the interest rate for your new mortgage must be about 2 percentage
points below the rate of your current mortgage for refinancing to make
sense. However, with the newer low- and no-cost refinancing programs, it
can be worth your while to refinance to obtain a smaller reduction in
interest rates.
How long you expect to stay in your home is also a factor to consider.
If you'll be moving in a few years, the month-to-month savings may never
add up to the costs that are involved in a refinancing.
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