One Number Tells You If Refinancing Pays

With rates in the headlines, many homeowners wonder whether a refinance is worth it. Jonathon Waunch says one number answers that question: your break even point. It is what the refinance costs, divided by what it saves you each month. The result is the number of months it takes for the savings to cover the cost.

The Three Quarter Point Rule of Thumb

A popular rule of thumb online is to wait for about a three quarter point drop in rates before refinancing. It can be a useful starting point, but the real answer depends on your loan size and how long you plan to stay in the home. A larger loan can justify a refinance on a smaller drop, and a shorter stay can make even a big drop not worth the cost.

Never Buy a Home Counting on a Refinance

Jonathon offers a warning because bad advice is everywhere right now: never buy a home counting on a refinance. Buy because the payment works today. If rates fall and a refinance makes sense, treat it as a bonus rather than part of the plan. Refinancing depends on your credit, equity, and market conditions at that time, so it should never be required for the purchase to work.

Get Your Break Even Run for Free

If you bought in the last two years, send Jonathon Waunch your current rate and he will run your break even for free.

Sources

FreddieMac.com
FederalReserve.gov
ConsumerFinancialProtectionBureau.gov
Fanniemae.com
Investopedia.com