Refinancing can be an opportunity to lower your monthly payments, pay off your loan quicker, reduce your overall interest expense, or even get cash out. But be sure to weigh the costs and benefits first.
Like when you first purchased your home, refinancing your mortgage comes with fees and closing costs that could add up to 1% or more of the new loan. Determining your break-even point—when your monthly savings will cover the cost of refinancing—can help you decide if it’s worth it. Find out more about your different loan options here.
Find your breakeven point.
To calculate your breakeven point based on monthly payment savings, estimate your savings based on your new monthly payment after the refinance. Then divide the fees and costs of the refinance by your estimated monthly savings. Here’s an example:
Cost to refinance: $1,800
- Monthly savings $100 = Breakeven point of 18 months
- In this case, if you planned on staying in your home for more than 18 months, the cost of refinancing could be worth it. After reaching your breakeven point, your savings would total $1200 a year.
The bottom line is that while reaching your break-even point may take some time, you may achieve some serious savings by refinancing if you’re in it for the long haul.
Other benefits to consider.
By refinancing your current loan at a lower interest rate, you may realize interest savings over the loan's lifetime. By consulting with a Better Banks loan officer, you can explore the various options for refinancing and the possible benefits.
Take the next step.
Contact us to explore your loan options, ask questions, or get started on an application.