From a strictly financial standpoint, the break-even point is achieved when the cost of refinancing has been recaptured by the monthly savings. It would take approximately 23 months to recapture $4,000 of refinance costs with a lower payment of $175 a month.
- Lower the rate
- Shorten the term so that the loan will build equity faster and be paid off sooner.
- Lower your payment to reduce your monthly cost of housing.
- Convert an ARM to a FRM to stabilize your payment due to concern of rising interest rates.
- Cash out equity to be able to use the money for another purpose.
- Combine a first and second mortgage.
- Consolidate personal debt so the interest is tax deductible.
- Payoff higher cost debt such as credit cards, student debt, etc.
- Remove a person from a loan as in the case of a divorce.
Points paid to purchase a principal residence are tax deductible completely in the year paid. However, the points must be spread over the life of the mortgage on a refinance. For that reason, consider getting a “par” value loan with no points. It may have a slightly higher rate but the interest will be fully deductible and it will lower the cost of refinancing.
Determine the break-even point on your situation by using the Refinance Analysis . Call for a recommendation of a trusted mortgage professional.