Many homeowners may feel like doing a refinance is starting over – however, that is far from the truth. Refinancing can be a great thing when it comes to getting a lower rate, we would only advice to refinance if the rate you are getting is at least 0.25% lower (quarter of a point) to benefit.
Anything beyond a quarter of a point will be more in your favor. We have seen people refinance an entire percentage point lower and it really makes a big difference. Our good friends at nerdwallet also highlight some pros and cons.
Do's and Do Nots of Refinancing:
- Don't refinance and take cash out just to splurge. The only reason to take cash out is to do meaningful upgrades to the home, never borrow the maximum amount either. We recommend borrowing a small amount treat it like a loan (with very low interest)
- Do compare rates and do research. Not all lenders are the same, you might be able to get a better rate through a private lender or Credit Union
- Do Not refinance if you're not sure or ready. Sometimes you may feel pressured, take your time and decide if the costs outweigh the cons.
Use a mortgage calculator and plug in your current rate vs your new rate. You'll be able to amortize your entire payment schedule to see the savings short term and long term.
Hope this helps and happy refinancing while rates are low!