Should you refinance your home? How to find out if it’s worth it

HOUSTON – Over the last year, millions of Americans have refinanced their homes to save money by taking advantage of low interest rates. Those rates have ticked up over the last few weeks, making many wonder if refinancing is still worth it.

2020 interest rates vs. 2021 interest rates

In November and December of 2020, you could get a 30-year mortgage for 2.5% interest.

Now it’s up to 3.13% if you have excellent credit. Credit scores of 720 and higher will fetch the lowest rates. You need a credit score of at least 690 to be able to refinance.

Should you refinance your home?

It’s not just the interest rate you need to think about. You need to ask yourself three questions.

  • How long do you plan to stay in the home you want to refinance?
  • Will you be able to recoup the cost of refinancing before you move?
  • What will refinancing cost you?

Cindy Smith with Hometrust Mortgage says it depends on your own set of circumstances.

“We try to guide people with ‘Okay, what’s your monthly payment right now? Principal and interest wise, and here’s what it will be if you refinance,” she explained.

Smith said the average refinancing will cost about $4,600 to $5,000, including the appraisal fee, survey, title, and lender fees. Those costs can be rolled into your mortgage, so you don’t have to pay upfront out of pocket.

She said you will also want to shop around for rates from different lenders.

To get a general idea of how much you can save, you can use NerdWallet’s mortgage refinance calculator.

When we punched in some numbers, it shows that refinancing a $300,000 30-year mortgage at 4% interest that we opened in 2010 to today’s rate of 3.13% would lower our monthly payment by $381. The tool also shows that it would take about 4 years to recoup all of the closing costs from the refinance. If we knew we would be in our hypothetical home at least 4 years, Smith says refinancing it would be worth it.

If you have a current interest rate of 4% or more, Smith said you should explore refinancing.

Can you refinance more than once in 12 months?

Smith said some of her customers have done this. She said if interest rates have dropped at least 1% since the first refi, it might make sense.

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