A reduction in your mortgage interest rate can translate into significant savings. The key is ensuring they aren’t outweighed by the charges and fees involved.

Here are some tips to help you determine whether refinancing your mortgage will pay off:


Lenders typically charge fees for the mortgage broker’s services, credit reports, a home appraisal and title insurance, among other costs.

To get a sense of the total costs, start with the “good faith estimate.” It’s a form that lenders are required to provide that details the projected costs associated with the loan.

Although certain costs of the loan can’t change, including the origination or broker’s fee, costs such as title fees may change until the loan is locked, meaning the interest rate is set.

The loan officer should also be able to help determine what your total monthly payment would be after the refinancing.


The general rule of thumb is that borrowers need to shave at least 1.5 to 2 percentage points from their rate in order for the refinancing costs to be worthwhile.

To qualify for the best rate on a mortgage refinancing, borrowers must have proof of income and have equity in their home. About 20 percent equity is ideal, but not necessary.


Don’t be fooled into thinking that you’re getting a better deal when it’s simply a new loan with a longer term.

To avoid this, tally up how much you’re paying now in principal and interest and multiply it by the number of months left on your loan. Then do the same calculation using the figures under the new loan.

If there’s a substantial difference, it may be worthwhile to refinance.


Even if your refinancing will lower your monthly payment, it will take time to recoup your expenses. So think about how long you plan to stay in your home.

To estimate how long it will take for your savings to offset the refinancing costs, divide the estimated costs by the projected annual interest savings.

Remember to factor in loan points, which borrowers can buy to lower their interest rate further. One point equals 1 percent of the loan amount.

As long as that is comfortably shorter than the time you plan to stay in the home, refinancing could be a good choice.


If you’re not comfortable doing all the math yourself or have general questions, contact one of our loan officers today. We are here to help!