It used to be said that you should only refinance if your new interest rate is at least 2 points lower.  Then that was changed to at least 1 point lower.   With the cost of refinancing becoming less expensive over the years, it's no longer the case.  Whether or not you should refinance has to do with a couple factors.

1.  How long do you plan to stay in your home?

2.  What is your current interest rate and what is the new interest rate that you can obtain if you refinance?

3.  How long does it take you to recover the costs of the refinance before you finally actually start receiving the benefits of the lower interest rate and payment?

Other factors to consider are whether or not you need to make home repairs, home improvements, or in some cases, help pay medical bills or help finance a college education for a family member.  There are situations where you just need the money.  

BEWARE OF NO COST REFINANCE OFFERS 

It sounds attractive, doesn't it?  The opportunity to refinance your home at no cost.  What most consumers don't realize is that NO COST loans always have a higher interest rate than other types of loans.  The lender is charging you a higher interest rate, in some cases .75% to 1% higher than you might be able to have otherwise in order to "cover" your closing costs.  If someone is telling you it's a no-brainer to do a no cost loan, that is exactly what they are hoping for...THAT YOU WON'T USE YOUR BRAIN when you have them do your refinance!

BEWARE OF LENDERS THAT PROMISE TO PAY FOR YOUR APPRAISAL

"I'll even pay for your home to be appraised."  Ever hear the guy that sounds like the classified ads guy that used to be on TV?  What these lenders typically do is tell you that they are going to pay for your home to be appraised, then charge the fee in the loan.  Don't fall for that marketing trick.  Work with someone that has integrity and will treat you with respect.   

Does your current loan have a pre-payment penalty?

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We'll help you determine if you have a pre-payment penalty.  In some cases, we can negotiate with your lender to waive the penalty.  We are not aware of any new mortgages that have pre-payment penalties attached to them now.  The Government has not looked favorably on these penalties, so lenders are no longer requiring them. 

Should I pay points?

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional in your state before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We'll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.