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Looking to Refinance? Here’s When to Say No

If you’re a homeowner with a mortgage, you probably think about refinancing when mortgage interest rates approach rock bottom. It only makes sense. Depending on your current rate, you might be able to shave years off the loan period for around the same monthly payment as your current mortgage. Or, for a similar number of years, you might knock a hundred bucks off your payment.

Either way, refinancing to a low rate could mean avoiding thousands of dollars in interest over the years. But that doesn’t always mean you should do it. Refinancing is not a one-size-fits-all proposition, and it doesn’t make sense for everyone. If you’re asking yourself if you should refinance, here’s when to say no.

You’re not going to stay for long

There are upfront costs associated with refinancing a mortgage. You can either pay out of pocket, or you can finance the costs, adding to your monthly payment and total interest paid.

If it costs you, say, $2,000 upfront to close your new loan and your new rate saves you $50 per month, it will take at least 40 months to break even. If you tacked the closing costs onto the new loan amount, it might be a little more because of interest. If you were to sell the house before those 40 months are up, you will have lost money.

There’s a breakeven point for every refinanced mortgage. You must calculate that breakeven point, then decide whether you’ll remain in the home long enough to get past it and into the black.

Continue reading on the next page to avoid making these refinancing mistakes.