An old rule of thumb suggested you would need a 1% rate drop to make refinancing worthwhile. This adage was from a time when average loan amounts were far smaller. However, in today's market, even a smaller decrease in your interest rate can lead to significant savings over the life of your loan.

To determine if refinancing will save you money, look at the following 3 factors:

1. How much will it cost? Refinancing isn't free—there are closing costs, fees, and possibly other charges involved. These costs can vary depending on the size of your loan and the terms of the refinance. It’s essential to know exactly how much it will cost you to complete the process.

2. How much will I save in interest each month? The primary reason most people refinance is to save on monthly interest payments. By securing a lower interest rate, you reduce the amount of interest you pay each month, freeing up more of your income for other uses.

3. How long do I plan to keep the loan? How long do you plan to stay in your home or keep the loan? This is crucial because it determines whether the savings from refinancing will outweigh the costs.

Refinance Break-Even Point Example:

Divide the cost to refinance by the monthly savings to determine your “break-even point.”  For example, $4,000 cost divided by $200 per month savings = 20 months to recover your costs.   

In this example, if you plan to stay in your home for several years, refinancing could save you thousands. In fact, you would save $2,400 every year you lived in your home past 20 months.

You can also maximize your benefits by applying some of those savings toward your principal. Even as little as $100 extra each month can help cut years off your loan term and significantly reduce the total interest paid.

Is Refinancing a Smart Move for You?
Refinancing can be a powerful financial tool, but it's important to ensure it aligns with your long-term goals. Are you wondering if a refinance makes sense for your specific situation? Perhaps you’re curious about how much you could lower your monthly payments, reduce the overall interest paid, or even shorten the term of your loan. Understanding your potential savings and the time it will take to break even on the costs of refinancing is key.

If you’d like to explore your options and determine the best course of action, reach out—we're happy to help.

Give us a call at 888-616-9885 for personalized advice and guidance or contact us here.

You can also use our Refinance Calculator to quickly see how much you could be saving with a lower interest rate. Click here to use our Refinance Calculator.