Q.  How do we know when we should consider refinancing our home?  Can you give us some guidelines?

A.  We're presented with this question often, and there's a fairly simply answer to the question.  It's an easy 3-step analysis you can do in a snap!

Step #1:  Add up ALL the costs you will incur when refinancing.  You'll need to include loan application fees, appraisal costs, loan origination fees, and any points to be paid.  You may also need to include items such as inspection fees and mortgage insurance charges.  For example, let's say you're considering a new $150,000 home loan and the total cost of obtaining the loan is $3,250.

Step #2:  Calculate the difference in your monthly payment, (principal and interest only), between your current loan and your new loan.  Continuing with our example, let's assume your current monthly payment at 8%, (principal and interest), is $1,100.65, and the monthly payment of your new loan, (at, say 6.5%), is $948.10.  Subtract your new loan payment from your existing loan payment, and you save $152.55 each month.

Step #3:  Divide your monthly savings, (from step #2), by your total cost of obtaining your new loan to achieve your "break-even" term.  Using our example, divide $3,250 by $152.55, and you get 21.30.  You must plan to live in your home at least 22 months for the savings to pay off.

The verdict?  If you plan to live in your home at least 22 months, then go ahead with refinancing.  But if you're planning on living in your home less than 22 months, or aren't sure, it's best NOT to refinance.  Thank you for your question!