New Refi Rules of Thumb

The new mortgage refi rules of thumb:

It’s all about your loan amount, and what it costs you to refinance.

• Loan amounts of $100,000 or less typically require a 1% to 2% rate reduction to make a refi worthwhile.
• Loan amounts around $200,000 usually only need a 0.5% drop in rate to save $1,000 or more per year.
• Loan amounts from $300,000 to $500,000 might take as little as a 0.25% to 0.375% rate improvement to make a refi make sense.

The other “sweetener” that can make a refi make sense is an increase in your equity position due to risking home values.  If you’re paying PMI or FHA mortgage insurance, the increased equity could eliminate that cost altogether or at least reduce the cost.

Increased home values could also open the door to taking some cash out for remodeling or paying off other higher rate loan or credit card balances.  Remember, the interest rate for taking cash out is typically 0.25% to 0.5% higher than a “regular” refinance, depending on your credit score and remaining equity.

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