Mortgage rates are at an all-time low. I just checked BankRate.com and the lowest rate for a 15-year fixed rate mortgage refinance for $250,000 is 4.178%. That’s insanely low. With rates this good, it should come as no surprise that Dave Ramsey is fielding quite a few calls from consumers wondering if they should refinance. Here are some guidelines I found on his site to help you answer the question, “Should you refinance your mortgage?”
The general rule of thumb is that if you can lower your rate by at least 2%, then the mortgage refinance is worth it. In the case of the above interest rate, if my current rate is higher than 6.178% then I should consider a refinance. However, I’m not planning on staying in my house for more than two additional years.
This brings us to another thing to consider when looking at refinancing your mortgage – the break-even analysis. You need to make sure that you are planning on staying in your home long enough to recoup the closing costs. This actual figure will depend on your individual figures – the amount of money you’ll save with a lower interest rate, what your closing costs are, and how long you’ll be in the house.
In some instances it is wise to refinance and in other cases, like mine, it won’t save you in money once you take everything into account. However, there is one instance where Dave Ramsey always recommends that a person refinance – when they have an adjustable rate mortgage.
If there is one thing certain about an adjustable rate mortgage, it is that the annual percentage rate is going to adjust. It may go down but it will definitely go up at some point. With a loan the size of a mortgage, why risk an adjustable rate? Refinance to a fixed-rate mortgage now.
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