The High Costs of a Low Interest Rate

Mortgage rates are low, very low!  For a 30-year fixed mortgage rates are below or close to 4 percent.  However, does it make sense to refinance when you consider the costs involved?

Closing costs can be steep.  Origination fees, title insurance, recording fees and so on add up to a good chunk of money.   I guess the biggest question you need to ask  yourself is how long you plan on staying in your home to pay back these costs.  When you consider the monthly savings of a lower mortgage payment, will you recover these costs in the time frame you will be in your home?

Let’s say your closing costs are $5,500 and this equates to a $277 savings per month on your mortgage payment.  You would be able to “payback” the closings costs in approximately 20 months.  So, if you plan on staying in your home longer than that it would be wise to refinance.  Also, If you are one that is focused on paying the principal down and staying in your home until it is paid off, consider bi-weekly mortgage payments.  Then you are really going to make a dent in the principal.

Of course, there are more factors involved in deciding whether to refinance at a low interest rate but if you can determine how long you plan on staying in  your home and what the closing costs will be, you are at a good starting point to move forward or not.