When Is the Right Time to Refinance Your Mortgage?

Refinancing can be an excellent way to cut costs for homeowners, and now may be an opportune moment to refinance.

After noting signs that the economy was beginning to slow, the Federal Reserve initiated cuts of their federal funds effective rate last year. With the massive economic threats posed by coronavirus pandemic, they decided to bring rates all the way down to 0.05%; this rate corresponds directly with what banks charge their prime customers (also known as “the prime rate”) plus approximately three percentage points and therefore correlates to mortgage rates.

Banks have responded by cutting mortgage rates all the way down to all-time historical lows – approximately 2.75% for 15-year mortgages and 3.33% for 30-year mortgages, respectively. Refinance rates are roughly equivalent to regular home purchase mortgage rates at this point in time, giving refinancing an opportunity to save significantly on interest payments.

Are we currently in an ideal moment for refinancing? Generally speaking, yes. Let’s consider all of the variables.

Mortgage Refinancing Variables
There are various factors to keep in mind when deciding if and when it’s the right time and place for you to refinance your loan:

How long are you planning on living in the house? Ideally, the longer is better from a refi standpoint.
How secure is your job (this impacts #1)? Likewise, more secure jobs make for better refinancing prospects.
And finally, your credit has improved since when you originally took out your mortgage? This factor comes into play #4.
Which are your current mortgage rate, potential refi rates and associated closing costs. Once this information is in hand, it can help determine your refinancing break-even point and whether or not you believe you can reach it.
Refinance break-even points measure how long it will take you to cover all the costs associated with refinancing.
Calculating your break-even is straightforward; to do so, simply divide the total costs of refinancing by the monthly savings on mortgage payments (all else being equal). The resultant number represents how long it will take until you break even in months.